Social Coordination and Social Change

Social and economic institutions govern how people interact with each other--they define the "rules of the game." Choosing the rules is at bottom a pure coordination problem, since people must agree on the rules in order to play. We posit that these rules evolve endogenously through the repeated interactions of individuals. They choose best replies to their environment subject to some inertia and error. Over the long run, such a process selects institutions (rules) that are efficient, and fair in the sense that the expected payoffs are centrally located on the Pareto frontier of the payoff possibility set