Rules, Equilibria and Virtual Control: How to Explain Persistence, Resilience and Fragility

Abstract

AbstractInstitutions are often regarded either as rules or as equilibria sustained by self-interested agents. I ask how these two theories can be combined. According to Philip Pettit’s Virtual Control Theory, they explain different things: rules explain why regularities persist; self-interest why they are resilient. Thus, his theory reconciles the two theories by adjusting their domains of application. However, the available evidence suggests that rules and self-interest often combine as sources of motivation. Because of this, it is better to integrate the theories rather than to reconcile them. Inspired by Cristina Bicchieri’s theory of social norms, I incorporate the notion of rule-following into a game-theoretic account of institutions. According to the resulting Rules-and-Equilibrium Theory, institutions are rule- or norm-governed social practices. The theory does not only explain their persistence and resilience, but also their fragility, which provides another reason for preferring the proposed integration to Pettit’s reconciliation.