Institutions and Cultural Capacity: A Systems Perspective

Abstract

Societies rely on a mixture of markets, hierarchies, and democratic institutions to allocate resources, make decisions, and establish order. The success of any one institution depends on its design features, the nature of the task, and the cultural capacities of the society within which the institution is embedded. In this paper, rather than consider cultural capacity as exogenous, we model institutions and cultural capacities as interdependent. Different institutions build different types of cultural capacities. Cultural-institutional equilibria exist when cultural capacities are consistent with institutional choices, and institutional choices are optimal given tasks and culture. We highlight five results. First, positive feedback between cultural capacities and institutional performance produces multiple equilibria, implying that cultural capacities and ensemble compositions will vary by place. Second, cultural-institutional equilibria will generically not be efficient because of a disconnect between the production and utilization of cultural capacity. Third, we derive a paradox of cultural capacity-building: an institutional type that builds too much generic cultural capacity can collapse because it makes other types of institutions more effective. Fourth, we show that complementary feedback with another institution can prevent collapse. Finally, we show that complementary feedback between other institutional types can reproduce a collapse of the generic cultural capacity-producing institution.

Keywords: institutional interdependence, comparative institutional analysis, systems theory