Masahiko Aoki
Stanford U.



(Thursday, 5th May 2005)

Title : Institutional Innovation

This lecture will discuss a conceptual and analytical framework for understanding the process of institutional change. For that purpose, I will adopt a quasi-game-theoretic framework for conceptualizing institutions and analyzing interdependencies among various institutions, economic, social, political, organizational and legal, as well as fast-changing and slow-changing. It is “quasi-“ in that it drops the assumption of perfect knowledge on the side of agents regarding the objective structure of the game. Instead, it is assumed that the agents have own imperfect subjective models of the game that they play. Then institutions are defined as shared beliefs among agents regarding ways how the game is repeatedly played. They revise them in response to the perception of emergent possibilities. In this process various institutions will interact with each other and define directions in which they change. The lecture will deal with some basic mechanisms of such interactions such as dynamic complementarities and dynamic embeddedness in order to understand the nature of spontaneous ordering and path-dependency as well as Schumpeterian innovation in institution. The lecture will discuss some conventional criticisms (misunderstanding, I would say) raised against the game-theoretic approach to institutions and equilibrium conceptualization of institutions. It is highly hoped that students will read my Toward a Comparative Institutional Analysis (MIT Press 2001) and Douglass North, Understanding the Process of Economic Change (Princeton University Press 2005).

Bibliographical references :

Must read reference : Masahiko Aoki [2005], Schumpeterian Innovation of Institution, Originally delivered as an invited lecture at the Tenth Conference of the International Schumpeter Society held in Milan on June 10, 2004.

Figure 1. An institution: endogenous - exogenous, objective - subjective, enabling-constraining dualities

Must read reference : Masahiko Aoki [2004], "An Organizational Architecture of T-form: Silicon Valley Clustering and its Institutional Coherence". Industrial and Corporate Change 2004 13(6):967-981.

Masahiko Aoki [2001], What Are Institutions? How Should We Approach Them?, in Toward a Comparative Institutional Analysis, Chapter 1, MIT Press.

Masahiko Aoki [2001], Subjective Game Models and the Mechanism of Institutional Change, in Toward a Comparative Institutional Analysis, Chapter 9, MIT Press.