When Order Affects Performance: Culture, Behavioral Spillovers, and Institutional Path Dependence

Abstract

Evidence suggests that the cultural context influences the performance of laws, policies, and political institutions. Descriptive accounts reveal that outcomes and behaviors often depend on the array of historical institutions. This article presents a multi-institutional framework that can account for those findings through path-dependent behavioral spillovers. Individuals learn equilibrium behaviors when interacting in a new institutional setting. Initially, some individuals choose behaviors that align with their behaviors in similar extant institutions, creating a cultural context that can lead to inefficient outcomes. The article shows how avoiding path dependence requires sequencing (or designing) institutions to maintain behavioral diversity. Optimal sequencing thus requires positioning institutions with clear incentives early in the sequence as well as avoiding strong punishments that can stifle attempts to break established behavioral patterns.