Urpelainen 2011 the Origins of Social Institutions

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2011 23: 215Journal of Theoretical PoliticsJohannes Urpelainen

The origins of social institutions

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Article

The origins of socialinstitutions

Journal of Theoretical Politics

23(2) 215240

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DOI:10.1177/0951629811400473

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Johannes UrpelainenAssistant Professor, Department of Political Science, Columbia University, USA

Abstract

How do individual agents enact the institutions that govern collective behavior in a social situ-

ation? How do individuals come to share self-enforcing expectations about collective behavior,

so that societal rules and constraints have an effect on individual choice? Conventional accounts,

such as contract and evolutionary theories or the analysis of conventions and social conflict, can-

not explain the origins of social institutions because they do not address the origins of shared

and self-enforcing expectations about collective behavior in a social situation. I analyze two sep-

arate stages of institutionalization. First, agents must imagine collective intentionality, so that an

imagined institution entailing a symbolic representation of collective behavior becomes commonknowledge. Second, they must enact it through shared and self-enforcing expectations on the

path of play. In my model, the agents are goal-oriented, so the process is strategic throughout.

Keywordsgame theory; institutionalization; institutions; rationality

1. Introduction

Social behavior is so deeply institutionalized that it is difficult to even conceive of a

state of nature in which most aspects of individual choice were not deeply regulatedby societal rules and constraints.1 How do individual agents enact these institutions that

govern collective behavior in their interactions? How do individuals come to share self-

enforcing expectations about collective behavior, so that societal rules and constraints

have an effect on individual choice?

While one might expect that the well-developed literature on social institutions could

answer these questions, our theoretical understanding of the origins of social institutions

is shallow. Various forms of the contracting hypothesis abstract away from the prob-

lem by assuming that institutions are equilibria of well-defined games, in which either

the agents or an exogenous sovereign enforce these contracts (Diermeier and Krehbiel,2003; Shepsle, 1986; Williamson, 1975). Thus, they can explain equilibrium selection but

Corresponding author:

Johannes Urpelainen, Department of Political Science, Columbia University, 420 W. 118th St., 712 IAB, NewYork, NY 10027, USAEmail: [email protected]

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216 Journal of Theoretical Politics 23(2)

not how these equilibria first became common knowledge among the agents. Although

evolutionary theories can explain how social institutions emerge from adaptive behavior,

they focus mostly on other issues than strategic behavior (Hayek, 1960; Hodgson, 2002;

Metcalfe, 1995; Witt, 1989; Young, 1993, 1998). Theories of conventions and socialconflict can explain institutionalization in simple coordination or bargaining games but

not in countless others (Knight, 1992; Lewis, 1969). Common to all three veins of the

literature is their inability to provide a plausible causal account of the incredible quan-

tum leap from the state of nature to institutionalized behavior that virtually all societies

around the world have somehow made.

My analysis assumes goal-oriented agents that behave strategically (Coleman, 1990).

It is based on two assumptions that are not used in the extant literature. First, I consider

two separate stages of institutionalization. Agents must first collectively adopt a particu-

lar symbolic representation of collective behavior as an imagined institution, so that its

existence and salience become common knowledge.2 They then enact the institution by

coming to an understanding that this imagined institution actually sets constraints on indi-

vidual choice. Second, I separate the internal and external faces of an institution (Hart,

1961). Common knowledge of the existence and salience of an imagined institution

implies that agents can conceive of collective intentionality (internal), while enactment

requires that the agents believe this imagined institution is self-enforcing (external). 3

This characterization provides a plausible stylized account of the process of institu-

tionalization. For an imagined institution to emerge, all that is required is that the agents

believe an imagined institution, for some reason, would promote their individual inter-

ests should it become an Archimedean point for understanding social reality. Thus, theimplicit assumption of contract theories that the game is common knowledge can be

abandoned. For an imagined institution to be enacted, the agents beliefs must converge

to the extent that their behavior on the path of play is self-enforcing. The resulting collec-

tive behavior can be underpinned by divergent counterfactual assessments of outcomes

off the equilibrium path, and the enacted institution can be vague so that even a low

level of belief convergence suffices.

The analysis draws heavily on two related traditions of institutional analysis. First,

both Hart (1961) and Denzau and North (1994) are representative of the tradition that

separates the external and internal faces of institutions. In the terminology of Denzauand North (1994), institutions only have an external face in that they are rules and

constraints set by the society. Shared mental models and ideology, on the other hand,

correspond to what I label the internal face of an institution. This paper links the two

concepts and assigns temporal precedence and priority to the internal face, thus providing

an analytical apparatus that can be used to examine the relationship between beliefs and

rules.

Second, Searle (1995) and Tuomela (1995) offer philosophical analyses of collective

intentionality. Both argue that human beings are capable of ascribing intention to a group,

which in this paper is a core element of institutionalization. An imagined institution is aparticular, weak form of collective intentionality by which the agents come to conceive

of the possibility of coordinated adjustments by a collection of agents. An enacted insti-

tution links the rules that regulate these adjustments to the beliefs that agents hold by

making the latter shared and self-enforcing.

I recommend my argument about institutionalization be interpreted in the spirit of

Ullmann-Margalit (1977: 1), as a rational reconstruction:



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Urpelainen 217

a description of the essential features of situations in whichsuch an event couldoccur: it is a

story of how something could happen and, when human actions are concerned, of what is the

rationale of its happening that way not of what did actually take place.

I believe that the process of institutionalization that I describe is less far-fetched than

those found in the extant literature. Yet it is not a literal characterization of how any

particular social institution was brought about by a group of agents. Thus, I offer several

illustrative examples instead of trying to artificially force a particular social institution

under my analytical framework.

The remainder of the article is organized as follows. First, I summarize and criticize

the extant literature on the origins of social institutions. Second, I define the concepts of

imagined and enacted institutions. Third, I construct a simple formal framework for anal-

ysis. Fourth, I use the formalism to advance a theoretical account of institutionalization.

Finally, I offer concluding remarks.

2. Conceptual issues

The contemporary concept of institution is somewhat ambiguous, but virtually all

recent theoretical treatments emphasize the role of rules and constraints on human

behavior (Aoki, 2001; Berger and Luckmann, 1966; Greif, 2006; Hodgson, 2006; Hur-

wicz, 1996; Knight, 1992; North, 1990; Ogilvie, 2007; Ostrom, 2005; Schotter, 1981;

Searle, 2005; Zucker, 1977). In addition to physical and technological limits to indi-

vidual choice, human behavior is structured and regulated by institutions that provideinformation about and incentives for appropriate collective behavior in different social

situations.

Beyond this shared foundation, scholars have examined institutions from three major

perspectives. First, many economic historians and theorists view institutions as the rules

of the game (Hurwicz, 1996; North, 1990; Ogilvie, 2007). Under this framework, institu-

tions are analytically exogenous and empirically observable constraints that limit individ-

ual choice.Inter aliaproperty rights and contract enforcement have drawn the attention of

institutional economists (Acemoglu and Johnson, 2005; Acemoglu et al., 2001; Demsetz,

1967; Rodrik et al., 2004).Second, a complementary framework highlights the endogeneity and dependence of

institutions on shared and self-enforcing individual beliefs (Aoki, 2001; Greif, 2006;

Schotter, 1981; Searle, 1995; Shepsle, 1986). This perspective, popular both in eco-

nomics and political science, views institutions as ultimately endogenous and emphasizes

their social origins. Analytical models of such endogenous institutions often treat them

as subgame-perfect Nash equilibria of repeated games (Acemoglu, 2003; Greif, 1993,

1994).

A third perspective to institutions can be found in sociology (Berger and Luckmann,

1966; Scott, 2008; Zucker, 1977). Sociologists highlight the taken-for-granted nature ofinstitutions and the process of externalization that renders stable patterns of behavior part

of objective reality. The most notable characteristics of this approach are the rejection of

an exclusive focus on the individual as the primary unit of analysis and the emphasis

on the dysfunctional and rigid nature of institutionalized behavior (Cohen et al., 1972;

Meyer and Rowan, 1977).4



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Of these three approaches, endogenous institutions is the most suitable for an analysis

of institutionalization. The following definition captures the essence of institutions:

Aninstitutionis a set of shared individual expectations about self-enforcing collective behaviorin a social situation.

This definition is a generalization of the notion of subgame-perfect equilibrium in

game theory (Aoki, 2001). An institution comprises the endogenous rules of the game

that constrain human behavior. These rules must be shared and self-enforcing so as to

induce the behavioral regularities that all veins of the extant literature so heavily empha-

size. They need not necessarily be formally represented, so the definition encompasses

both formal and informal institutions (Helmke and Levitsky, 2004).

Of course, it is not possible to simultaneously endogenize all institutions (Aoki, 2001;

Greif, 2006). Some characteristics of a social situation are inevitably regarded as exoge-

nous, or part of the game form. They may even include some enforcement devices, such

as the police force, or foundational communication devices, such as language (Vanberg,

1994). Indeed, as Hodgson (2006: 15) writes, an important class of institutions exists

in which such institutions depend on other institutions in order to enforce effectively

their rules. In this paper, endogenous institutions, and particularly the notion of self-

enforcement, refer to human interactions in a social situation that is embedded in the

broader social context.

The notion of endogenous institutions permits a useful distinction between the exter-

nal and internal face of institutions. First, the external face of an institution representsthe enacted rules and constraints that individuals consider in a choice situation. The exter-

nal face thus covers the rules and constraints that act as social determinants of individual

behavior in an institutionalized environment. They form the substance of empirical insti-

tutional analysis, a central theme of which is the causal effect of institutions on economic

growth, societal stability, and other relevant outcomes (Greif, 1993, 1994; North, 1990;

North and Weingast, 1989).

Second, the internal face of an institution represents the beliefs and expectations that

underpin these rules and constraints. If institutions are indeed endogenous, the rules and

constraints that they generate must not be physical or technological; instead, in an insti-tutionalized environment, individuals expect other individuals to react in certain ways to

their actions. These expectations comprise the assignment of roles, the distribution of

authority, and sanctions for inappropriate behavior (Biddle, 1986; Hart, 1961; Knight,

1992). Thus, collective intentionality (Bratman, 1992; Searle, 1995; Tuomela, 1995)

arises because an individual attributes an intention to the group in which he or she

belongs while holding that intention and believing that other group members hold it,

too (Hodgson, 2006: 5).

This notion of collective intentionality is minimal, as the resulting intentions sim-

ply enable coordinated adjustments of collective behavior. It need not carry normativeconnotations of desirability or functionality.5 Yet it is fundamentally important, because

the internal face of an institution must comprise shared and self-enforcing expectations

about collective behavior. Without a minimal level of collective intentionality, coordi-

nated behavioral adjustments are impossible and the concept of collective behavior has

no meaning.



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Urpelainen 219

To be sure, my notion of collective intentionality is somewhat different from the myr-

iad conceptualizations that the literature offers. Tuomela and Miller (1988: 370) advance

a full-blown notion of intentional joint action that commits individuals to a common

goal, whereas my definition applies even if the individuals are actually not committedat all (so that they may even have deceptive intentions). Bratman (1993: 106) insists

that shared intention entails a meshing of subplans that admits rather sophisticated

coordination, while my definition simply refers to coordinated behavioral adjustments in

general, even if they are rather vague or, indeed, at cross purposes. The most important

element of my notion is that collective intentionality is a biologically primitive feature of

being human (Searle, 1990).6

To understand the relationship between the external and internal face, consider a vil-

lage that depends on a common-pool resource, such as fisheries, for a livelihood (Aoki,

2001; Hardin, 1968; Ostrom, 1990). If the villagers enact a system of monitoring and

sanctions to prevent the tragedy of the commons, the external face of this institution

can be characterized as the constraints on self-interested overexploitation of the fish-

eries determined by the likelihood of being caught and the severity of the resulting

sanction. The internal face of this institution consists of the shared and self-enforcing

beliefs that such monitoring occurs and really prompts a punishment by other members

of the society. Collective intentionality pertains to preserving the common-pool resource,

and the corresponding coordinated behavioral adjustments take the form of collective

enforcement.

Based on this characterization, I use a simple definition of institutionalization:

Institutionalizationis the process through which individuals come to hold shared expectations

about self-enforcing collective behavior in a social situation.

The argument below focuses on the microanalytics of this process.

3. Theories of institutionalization: a critique

Extant theories of the origins of social institutions are conventionally categorized accord-

ing to the nature of the interactions that cause their emergence (Knight, 1992; Knight and

Sened, 1998). According to contract theories, social institutions are efficient solutionsto such problems as opportunism and incomplete information (Williamson, 1975, 1985).

Evolutionary theoriesfocus on the emergence of social institutions through decentralized

interactions among adaptive agents (Hayek, 1960, 1988). The analysis ofconventions

focuses on coordination games (Lewis, 1969; Young, 1998) while the literature on social

conflictemphasizes the role of distributional conflict in the emergence of social institu-

tions (Knight, 1992; Ogilvie, 2007). I offer a unified critique of these theories based on

their inability to provide a valid characterization of the process of institutionalization.

3.1. The contracting hypothesis

Contract theories emphasize the intentional design of institutions to solve the myriad

problems that individual agents face in social situations. In classical scholarship, perhaps

the most influential treatises of contract theory are Leviathan by Hobbes (1998 [1651])

andSecond Treatise of Governmentby Locke (1980 [1689]). The logic of transaction-cost



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economics, forcefully advanced by Williamson (1975, 1985), examines the causal arrow

from such problems as incomplete information and opportunism in markets to explicit

contracts for the creation of hierarchic governance structures, such as the firm. For exam-

ple, in politics, Weingast and Marshall (1988) provide a functionalist explanation forthe industrial organization of the US Congress and Keohane (1984) explains inter-

national regimes as solutions to various cooperation problems that impede profitable

transactions between sovereign states.

The use of contract theory has drawn fire from scholars who contend that its empirical

validity is questionable (Knight, 1992; Ogilvie, 2007; Pierson, 2000), but the odd logic of

institutionalization in these theories is rarely challenged. Perhaps closest to my argument

comes Hume (1986 [173940]: Book III, Section 2) who backs his empirical critique of

contract theory with the following cognitive counterargument:

But if men pursud the publick interest naturally, and with a hearty affection, they woud neverhave dreamd of restraining each other by these rules; and if they pursud their own interest,

without any precaution, they woud run head-long into every kind of injustice and violence.

These rules, therefore, are artificial, and seek their end in an oblique and indirect manner; nor

is the interest, which gives rise to them, of a kind that coud be pursud by the natural and

inartificial passions of men.

Indeed, contract theories are based either on a real or a hypothetical agreement among

individual agents to establish an institution. This agreement is in turn based on a shared

understanding that Pareto-inefficient collective outcomes are probable without such an

agreement, perhaps as a result of past experience, and a common expectation that a con-tract could solve the problem. In a market economy, employees shirk and traders cheat

without monitoring; in politics, uninformed and unaccountable policymakers reduce

collective welfare when they make misinformed and self-seeking decisions. In game-

theoretic terms, the process of institutionalization is therefore reducible to equilibrium

selection through some implicit bargaining process between the concerned agents.

Such agreements are certainly negotiated and enforced in any society, but note the

negotiating agents must have already understood the social situation so well that they

can collectively imagine the expected Pareto-inefficient outcome or at least assign a

commonly known probability distribution over possible outcomes. They must understandwhat Pareto-improving equilibria are possible so that they can select among them, so

almost everythingin the relevant social situation must already be common knowledge.

Contract theories thus assume that individual agents have already defined alternative

modes of collective behavior, and all that remains is to write a contract that selects one of

them as the institution. Does this not omit a most important part of the process, namely

the cognitive process through which the individual agents come to imagine these possible

institutions?7

Indeed, the logic of contracting is incompatible with the internal face of institution-

alization. When individual agents select among equilibria, they must imagine that thereis a set of possible default outcomes, such as defection in a Prisoners Dilemma, that are

Pareto-inefficient and therefore undesirable. But these default outcomes are not any dif-

ferent from the institutions that the contract creates, for both involve shared individual

expectations about self-enforcing collective behavior in a social situation. In contract

theories, institutionalization has advanced to such an advanced stage that any possible



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Urpelainen 221

outcome is essentially an institution. The word institution should therefore be replaced

with the word rule so as to exclude equilibria institutions that are self-enforcing in

the state of nature.

This logic does not render contract theories empirically inadmissible, but it does high-light the fundamental consequences of adopting the premise that almost everything is

common knowledge, as is common in classical game theory and equilibrium analysis. If

institutionalization is to be a useful theoretical concept, it must refer to interactions at a

previous stage characterized by pervasive uncertainty that permits either disequilibrium

outcomes or self-confirming equilibria that are not structured by an underlying game of

common knowledge (Fudenberg and Levine, 1993).8

Contract theories are undoubtedly useful in empirical research, and they have a

particularly important role in the analysis of institutional political economy in modern

industrialized societies with strong enforcement mechanisms for legal agreements. But

they do not provide a causal mechanism of institutionalization that accounts for the gener-

ation of shared expectations about collective behavior. This generative process is simply

assumed to exist in the background.

It is quite interesting to note that the logic of contract theories has profound implica-

tions for some theories that are usually categorized as evolutionary, such as Schotters

(1981) seminal economic theory of social institutions. He assumes that individual

agents face either a collective action or a coordination problem. They enter the game

with a limited set of norms cum simple strategies among which they choose, and Bayesian

beliefs about the norms that other agents have adopted. As the agents interact, they update

their beliefs about these norms until the system converges so that they all share a norm.This common norm is then the institution. Again, it is assumed that the individual agents

can already conceive of a set of available social institutions. Nave learning and inability

to coordinate do not reverse the consequences of the fundamental assumption that the

agents can already anticipate all possible equilibrium institutions.

3.2. Evolutionary theories

The logic of evolutionary institutional theories is straightforward. Instead of assuming

that human beings engage in sophisticated rational reasoning in a well-defined environ-ment, they act according to naturally or culturally inherited behavioral rules in order to

adapt to the external environment (Boyd and Richerson, 1985; Hirshleifer, 1977). Institu-

tions evolve when these adaptive processes converge, either through biological selection

of fit behavioral rules or cultural selection through imitation of successful behav-

ioral rules (Alchian, 1950; Hayek, 1960; Nelson and Winter, 1982; Young, 1993). The

resulting, regular and stable pattern of behavior is an element of the broader and deeper

spontaneous order that structures social behavior even in the absence of state coercion

(Hayek, 1988; Sugden, 1989).9

Evolutionary theories are attractive and compelling because they do not require thathuman beings have unlimited computational capacity or a brain that reasons accord-

ing to deductive, syntactic rules of inference (Hayek, 1988; Hirshleifer, 1977; Nelson

and Winter, 1982). While they shed light on the continuous evolution of institutions by

providing a plausible account of how routinized behavior and habits allow institutional

change (Hodgson, 2002; Metcalfe, 1995; Nelson and Winter, 1982; Vanberg, 1994), they



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focus largely on issues other than the individual strategic calculus, and the resulting social

interactions, that drive institutionalization. While evolutionary theories are particularly

suitable for explaining how individuals develop behavioral regularities and adapt various

social situations, thus providing a foundation for institutional analysis, they do not fullyaccount for how strategic expectations regarding the consequences of institutionalization

influence the probability that a given social institution is ultimately enacted.

To be sure, this does not imply that evolutionary theories do not have a role in the

theory of institutionalization advanced here. Nothing in the logic of evolution, and its

cultural version in particular, prevents individual agents from holding beliefs and expec-

tations. As Searle (1995: 24) correctly argues, [collective] intentionality is a biologically

primitive phenomenon that cannot be reduced to or eliminated in favor of something

else, so evolutionary theories should naturally fit the concept of institution that I have

used. Indeed, my interpretation of collective intentionality is very much in the spirit of

routines and habits as important building blocks of human behavior.

3.3. Conventions and social conflict

Contract theories and evolutionary theories are ambitious in that they do not demarcate

a limited domain in which they should be applicable. The analysis of social conventions

differs in this regard, as it focuses exclusively on situations in which individual agents

stand to gain from coordinated behavior. Salient examples include the use of a common

language, currency, or calendar (Lewis, 1969; Sugden, 1989). As Young (1993) shows,

the results are applicable even when the exact nature of coordination has distributionalimplications.10

The idea behind the notion of a convention is simple. Regardless of the exact behav-

ioral postulates pertaining to the individual agents, this literature emphasizes that salient

focal points, such as meeting at the central railway station, help individual agents to

coordinate their expectations (Schelling, 1960: 57).11 The process of institutionalization

therefore boils down to identifying a focal point, which depends on a history of common

experience and shared cultural understandings (Sugden, 1989). As Lewis (1969) shows,

the repetition of interactions that prompt strategies in accordance with this focal point

then generates a social convention.The analysis of conventions is valuable because the literature does posit a mecha-

nism of institutionalization. If it is indeed the case that individual agents share common

experiences or a culture that permits recognition of salience, the generation of shared

expectations about collective behavior is a straightforward and, I conjecture, relatively

rapid process especially in the absence of distributional implications. The problem is

that the analysis of conventions is not equivalent to a full theory of institutionalization,

for it is contingent on the existence and primacy of a coordination problem. In a Pris-

oners Dilemma, for instance, salience per se is only relevant for equilibrium selection,

as all individual agents prefer to defect each period unless some, possibly endogenous,enforcement mechanism is available.

In an insightful treatment, Knight (1992) has extended the study of conventions to

social situations that include a coordination problem compounded by the distributional

implications of different solutions. He argues that social institutions emerge as by-

products of distributional struggles between powerful and weak agents. Powerful agents



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Urpelainen 223

have a systematic advantage in these struggles, and if bargaining power is correlated with

visible traits, the society comes to share the expectation that the solutions preferred by the

mighty will be adopted. His thesis is essentially a sophisticated modification of the anal-

ysis of social conventions that replaces the possibly arbitrary determinants of saliencewith bargaining power.

This analysis offers a causal mechanism through which institutionalization occurs,

and Knight (1992) himself claims that the analysis is general. This, however, is incorrect.

An examination of the distributional implications of coordinated behavior does resolve

part of the puzzle, but it cannot address the solution of collective action problems such as

the Prisoners Dilemma.12 The analysis of social conflict, which certainly resonates well

among political economists, should thus be seen either as a special case of institutional-

ization or a partial analysis of the broader class of social situations in which institutions

emerge.

Why have scholars of conventions and social conflict made more progress than schol-

ars of collective action problems in providing a mechanism of institutionalization? The

reason is probably that coordination problems, with or without distributional implica-

tions, are naturally inclined to give rise to remarkably simple processes of institutional-

ization. This is so for two reasons. First, the key problem in a game-theoretic formulation

is the selection among multiple self-enforcing patterns of behavior. It is quite natural

that the notion of salience due to Schelling (1960), be it arbitrary or power-based, is now

universally accepted as the core of the process of institutionalization. Since the conven-

tions are self-enforcing without the generation of intertemporal enforcement strategies,

the building blocks of an institution are immediately available to the agents. Second,the problem is ultimately not contingent on stringent assumptions regarding common

knowledge of the game form. It is precisely under pervasive uncertainty that the value

of coordination is highest. This observation, which requires the abandonment of the

assumptions of classical game theory, is particularly important because it ensures that

the institutionalization of social conventions is applicable to a range of social situations.

4. Redefining institutions and institutionalization

As I have argued above, contemporary theories of institutionalization do not provide a

valid characterization of the process. This shortcoming stems from an inability to show

how interactions between goal-oriented agents generate a plausible pathway over time

from a state of nature, characterized by pervasive uncertainty, to institutionalized social

behavior.

The solution that I propose is to expand the range of social phenomena covered by

institutional analysis as follows. Instead of limiting the analysis to the restrictive condi-

tions outlined by scholars of endogenous institutions, I characterize institutions as one

extreme in a continuum of social phenomena that also encompasses the dark matterbetween endogenous institutions and the state of nature. Defined this way, endogenous

institutions are a description of enacted institutions that involve shared expectations

about self-enforcing collective behavior. A greater range of imagined institutions that

involve expectations about collective behavior, not necessarily shared or self-enforcing,

can then be substituted for the quantum leap of contract theories. My central conceptual



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innovation is to highlight the role of expectations about collective (as opposed to indi-

vidual) behavior as the defining feature of imagined institutions, which stands in stark

contrast to the focus onsharedexpectations aboutself-enforcingcollective behavior.

To begin with, let us define an enacted institution:

Definition 1. An enacted institution is a set of shared individual expectations about self-

enforcing collective behavior in a social situation.

This is the very definition that I used above to characterize endogenous institutions.

The term enacted is due to Weick (1995: 30) who argues that in organizational life,

people produce part of the environment they face. I add it as a reference to the notion

that the external face of an institution is indeed something an individual considers part of

the institutionalized, social reality in which the corresponding rules and constraints have

real consequences. Equally important, it allows the possibility of unenacted institutions.In the vocabulary that I use, these are the imagined institutions:

Definition 2. Animagined institutionis a commonly known salient symbolic representation of

collective behavior in a social situation.

This definition characterizes an imagined institution as a commonly known idea of

collective behavior in a social situation (Anderson, 1983). The idea must be common

knowledge (Aumann, 1976; Lewis, 1969), for otherwise the definition is reducible to

individual beliefs about collective intentionality without ramifications for social behavior.

And to be common knowledge, it must be communicable as a symbolic representation.Finally, individuals can potentially have common knowledge about numerous symbolic

representations, but only a few can be salient in a social situation.

To build intuition, consider an example. First, many Soviets and East Europeans prob-

ably understood which shared expectations about collective behavior were integral to

the institution known as democracy. But for these citizens, democracy was an imag-

ined institution. Even though the symbolic representation of democracy was common

knowledge for millions and a salient alternative to communism, it did not prompt shared,

self-enforcing individual expectations about collective behavior under democratic insti-

tutions in virtually any social situation, as these citizens were fully cognizant of the realrules and constraints set by their communist rulers. As Kuran (1991: 123) writes, offi-

cial repression is only one factor in the durability of communism... People with every

reason to despise the status quo applauded politicians they mistrusted, joined organiza-

tions whose mission they opposed, and signed defamatory letters against dissidents they

admired.13 It was only as a result of the revolutions of 1989 that the enacted institution of

communism collapsed and the imagined institution of democracy was gradually enacted.

Following again Kuran (1991: 124), In one country after another a few thousand people

stood up in defiance... Before long, fear changed sides: where people had been afraid to

oppose the regime, they came to fear being caught defending it.The importance of imagined institutions is profound if one accepts, as I enthusiasti-

cally do, the thesis promoted by Hart (1961) and Searle (1995) that institutions must have

an internal face. Imagined institutions are integral for the process of institutionalization

because they lay the foundation for these internal beliefs. Under uncertainty and ambigu-

ity, a commonly known symbolic representation of collective behavior is necessary for an



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Urpelainen 225

agent to grasp the possibility of genuine institutionalization. In an extremely demanding

environment without institutions to structure and stabilize human interactions, an agent

with limited cognitive capacity must reach beyond the current material reality to imagine

institutions before they can materialize, and a commonly known symbolic representationof these creatures is an expedient means to facilitate imagination. This development does

not require that agent to be particularly sophisticated, but they must have a natural capa-

bility to imagine. In line with evolutionary theorizing, I find this precondition plausible

(Boyd and Richerson, 1985; Hodgson, 2002; Nelson and Winter, 1982).

We can now consider a two-step process of institutionalization:

Definition 3. Institutionalization is the process through which a symbolic representation of

collective behavior first becomes common knowledge and salient among, and is then enacted

as an institution by, a group of agents.

This characterization of the process closes the gap between the state of nature and

enacted institutions. Between these two extremes, there is a crucial stage at which indi-

vidual agents imagine collective behavior and communicate the resulting image to other

agents using a symbolic representation. My analysis focuses mostly on what happens

after at least one agent has imagined a certain form of collective behavior.

First, an imagined institution appears when the existence and salience of a given sym-

bolic representation becomes common knowledge, an event that I label activation. In

my model, activation is a communication process, whereby each individual agent publicly

recognizes the salience of a symbolic representation that she believes should be an imag-ined institution. If all individual agents simultaneously recognize a particular symbolic

representation, it is activated. For example, in the case of communist Eastern Europe,

although different opposition groups certainly disagreed on what exactly democracy is

and should be, on a minimal level, it did become the most salient alternative to commu-

nist dictatorship. This would not have been possible unless individual opposition activists

had communicated to others their commitment to democratization.

Indeed, the concept of activation does notimply that the individual agents agree on

all details and features of an imagined institution, or that they are sincerely interested

in playing by the resulting rules. What matters is that they all simultaneously believe

that recognizing the salience of a given symbolic representation will be expedient in the

future. Each individual agent publicly announces that she has recognized this symbolic

representation, and if these announcements are compatible, an imagined institution is

activated. Although democracy was not a well-defined or uncontested concept among

Eastern European opposition activists, the competing conceptualizations had enough in

common that the idea of democracy guided and coordinated efforts to undermine the

communist dictatorship.

While the decision to recognize and announce a symbolic representation as an imag-

ined institution is fully strategic from an individuals perspective, the joint act of activa-

tion is not. Instead, activation is based on the biologically primitive notion of collectiveintentionality, as defined in this paper following Searle (1990, 1995). Human beings are

intrinsically capable of understanding how groups of individuals can coordinate behav-

ior in a social situation, and this biological predisposition allows activation: when an

individual notices that others have also publicly recognized a symbolic representation as

salient, she automatically begins to regard it as active. Yet each individual retains her



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strategic ability to subsequently deviate from the behavioral prescriptions of an imagined

institution. My minimal notion of biologically primitive collective intentionality thus per-

tains only to an intrinsic ability to recognize the possibility of coordinated behavior; it

does not involve the deeper notion of evolutionary habituation as an intrinsic element ofinstitutionalization (Hodgson, 2002, 2006).

Second, following activation, an imagined institution is enacted as a result of con-

verging beliefs about self-enforcing collective behavior. If the activation of an imagined

institution, and the resulting strategic interactions between individuals, allow beliefs to

converge, enactment occurs: the imagined institution begins to actually regulate individ-

ual choice. For post-communist Eastern Europe, this resulted from the establishment of

democratic political institutions.

The relationship between activation and enactment has four essential features. First,

activation does not imply enactment. An imagined institution may remain unenacted for

a long period of time, or even fade away as irrelevant. Thus, if activation does not prompt

converging beliefs, enactment may fail. Second, activation is nevertheless a necessary

condition for enactment. In the absence of an imagined institution, enactment is impos-

sible because the social institution does not have an internal face. Third, activation may

have a direct effect on strategic interactions, even without enactment. Even if individ-

uals do not believe that the imagined institution is self-enforcing, they may recognize

activation as a strategic opportunity or threat. To the degree that the resulting strategic

responses are compatible with the behavioral prescriptions of the imagined institution,

they can facilitate belief convergence and thus have an integral role in enactment. Finally,

activation and enactment may be simultaneous, as contract theories have it. If the joint actof activation prompts individuals to recognize the imagined institution as self-enforcing,

enactment follows immediately.

I characterize the features of imagined and enacted institutions below in greater detail

using formal techniques, but it is useful to note that the concept of collective behavior

is yet to be rigorously defined. A symbolic representation of collective behavior can

have different levels of resolution from vague guidance on appropriate behavior to

specific, formally codified and legally enforced rules. Here, game theory and the dis-

tinction between events on the equilibrium path and off the equilibrium path turn

out to be useful.14 Specifically, I claim that both imagined and enacted institutions mustinvolve a symbolic representation of behavior both on and off the equilibrium path, while

enactment also requires that behavior on the equilibrium path be subject to shared and

self-enforcing expectations.

5. A formal model of institutionalization

To impose structure on the analysis, I present a simple formal model of social behav-

ior and institutions that draws heavily on the theory of learning and repeated games

(Fudenberg and Levine, 1998; Mailath and Samuelson, 2006).

5.1. Social behavior

A model of social behavior must address the following issues. First, it must describe the

agents, the actions available to them, and the resulting payoffs. Second, it must contain a

representation of agent beliefs and learning protocols.



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Urpelainen 227

Let N = {1, . . . , n} denote a set ofagents indexed by i in a social situation . The

set ofactions ati available to agenti at timetis denoted byAti. For ease of exposition, set

Ati =Aifort= {0, . . . , } so that the social situation is formalized as a repeated game

(Greif and Laitin, 2004; Ostrom, 2005; Shepsle, 1986). The payoff to agenti at timetisui(ati, a

ti), and the payoff from the repeated game is

t=0

ti ui(ati, a

ti), (1)

wherei (0, 1) is the discount factor of agenti.

Consider now the information structure. First, the set of actions A = Ai is common

knowledge. Second, each agent i knows its own payoffs ui. Third, all uncertainty per-

tains to the type of other agents i. Specifically, at any time t, agent i assigns a

probability measure ti on the type vector of other agents i, which is denoted by

i = (1, . . . , i1, i+1, . . . n) and drawn from a finite type space i. Each type j,

wherej=i, is anautomaton representationof a strategy for the repeated game:

j= {Qj0, . . . , Q

jm,

j}, (2)

where eachstate Qjkspecifies a unique actionajand

j :{Qj0, . . . , Q

jm} A {Q

j0, . . . , Q

jm} (3)

is atransition rulethat maps the product of the state space and the action space into the

state space. The idea is simply that the current state of the automaton instructs the agent

how to react to any vector of actions by moving to another state, which in turn contains

a similar set of instructions. This formalization can be shown to be equivalent to a con-

ventional representation of strategies as functions of histories (Osborne and Rubinstein,

1994).

This information structure deviates from classical and evolutionary game theory.15

It assumes that the only information available to each agent i at any time is a subjective

probability distribution over possible strategies that the other players are using (Savage,

1954). It is obviously possible to map these probability distributions into various ratio-

nalizations for behavior, but it is equally important to note that the information structure

is coherent with minimal assumptions about common knowledge. No equilibrium con-

jectures or sophisticated recursive reasoning are necessary, which is a major advantage

over classical game theory for an analysis of uncertain and ambiguous environments. I

could have specified an infinite hierarchy of beliefs and specified a solution concept, such

as the perfect Bayesian equilibrium, but then this solution concept would have to be made

common knowledge. This would, in turn, defeat my purpose of analyzing how symbolic

representations become common knowledge during the process of institutionalization.

Given this information structure, it seems plausible that agenti maximizes its payoffagainst its subjective beliefs: for all ,

a

i arg maxAi

ti

i(

i)

t=

t ui(ati, a

ti(

ti)) (4)



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This condition ensures that agentimaximizes its payoff given the information that it has.

Notably, social behavior is strategic in that each agent i also considers the effect of its

behavior on thefuturebehavior of other agents igiven their strategies.

The most important difference between this model of social behavior and classicalgame theory is that the coordinated behavioral adjustments that underpin much of the

literature on repeated games and endogenous institutions are precluded (Mailath and

Samuelson, 2006; Shepsle, 1986). In the absence of institutionalization, I submit, indi-

vidual agents cannot simply coordinate their behavior. At any time t, each agent i is

best-responding to the strategic environment that it expects based on its subjective beliefs.

The effect of institutions, which I incorporate in the analysis below, is to allow limited

deviations from this atomistic mode of behavior. Other than this limitation, the infor-

mation structure is very general, as any best-response correspondence can be trivially

collapsed into beliefs regarding the strategies of other agents in a social situation.

To close the model, consider the learning protocol. How do the beliefs ti at time t

depend on beliefs t1i and behaviorat1 at timet 1? Since this article does not claim

to contribute to the theory of learning, I consider a general learning protocol for each

agenti:

ti = ti(

t1i , a

t1). (5)

This learning protocol simply maps past beliefs and observed behavior into current

beliefs. The learning protocol need not be Bayesian; it can include genuine surprises

in which past actions by other agents i contradict the beliefs that agent i had at thetime. While such a formulation can be difficult to work with in any specific empirical

application, generality is highly desirable in a higher-order examination of social behav-

ior. In complex social situations, it is also quite plausible that agents cannot account for

all possible contingencies by carefully considering all strategies over infinitely long time

horizons that other agents could possibly play (Rubinstein, 1998).

To summarize, play is as follows. Each agent enters the game with subjective beliefs,

perhaps from previous experience in equivalent social situations. The agent chooses its

optimal action given these beliefs and observes actions by other agents, which permits

updating of beliefs. This process is simply iterated over time so that it prompts a patternof social behavior.

Finally, note that the social situation contains all information available on physical

and technological asymmetries that equip some but not all agents with social power

(Dowding, 1991). While I do not purport to conduct an analysis la Knight (1992), I

concur with him in recognizing that power and social conflict are important determinants

of institutionalization. As Taylor (1987) argues, individuals value eminence that endows

them with the capabilities necessary to pursue their goals. If these individuals thrive

in the state of nature, they can credibly threaten not to enact or even imagine social

institutions that are not in their interest. My analysis does not contradict these premises,but I have chosen not to focus on them. To do this, I could have, for example, added an

endogenous power parameter for each individual and allow the agent to pursue increased

social power. This alternative approach might shed light on power dynamics in a society,

but it would not help us understand the relationship between activation and enactment

during the course of institutionalization.



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Urpelainen 229

5.2. Imagined and enacted institutions

In modeling imagined and enacted institutions, I emphasize two important elements.

First, agents in a social situation are goal-oriented and instrumental (Coleman, 1990).

Second, social situations of interest are so complex as to impose a major burden oncognitive capacity (Jones, 1999; Weick, 1995). Based on these premises, I construct an

analytical model that illuminates the origins of social institutions by characterizing a

plausible process of institutionalization that begins in the state of nature described in

the previous subsection.

To begin with, let us define an imagined institution:

Definition 4. Animagined institutionC Cis anactivatedcoordinated automaton repre-

sentation {C,,RC0, . . . ,RCn,

C}, whereCNis a coalition, eachRCk

species a unique action

vectoraCfor coalitionC,

C

: {R

C

0, . . . ,R

C

n } A {,R

C

0, . . . ,R

C

n } is a transition rule, and denotes aterminal statein which the imagined institutionC isdeactivated.

Definition 5. An imagined institution C is enacted if the beliefs of every actor i C are

identical and common knowledge on the path of play, which follows C.

Definition 4 can be understood as follows. First, an imagined institution represents

how collective behavior could be coordinated. Comparing an imagined institution Cwith a type of an actorj, one observes that an imagined institution is different in that

it permits the coordinated adjustments that have such a fundamental role in the non-

cooperative theory of repeated games (Hardin, 1982; Mailath and Samuelson, 2006;Taylor, 1987).

Second, an imagined institution emerges as a result of activation. Every individual

agent has access to her own repository of symbolic representations of collective behav-

ior, but most of them never become active. Activation thus corresponds to a coordinated

automaton representation becoming common knowledge and salient among members of

coalition C, according to rules specified below in Definition 6. Another way to think

about activation is to view an imagined institution as an implicit or explicit agreement

among the agents that a particular symbolic representation of collective behavior is the

primary candidate for enactment. For example, some image of West European democ-racy could have been the imagined institution that East Europeans had in 1989, as the

revolutionary events were triggered.

The symbol is reserved for the terminal state in which an institution is deacti-

vated or, in more vivid prose, collapses. Activation is necessary for enactment, but not

all imagined institutions are enacted. Definition 5 characterizes enacted institutions as a

subset of imagined institutions.

The key step in the analysis is to define institutionalization:

Definition 6.Institutionalizationcomprises theactivationof imagined institutionC, whereby

every memberiof the coalitionC announcesit in a pre-game stage at timet, and the generationof identical and commonly known beliefs on the path of play determined by C at any time

t, . . ..

This definition has two notable features. First, activation of an imagined institution is

a voluntary, collective act by a group of individuals. Each individual has a repository of



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potential imagined institutions, possibly of limited size due to limited cognitive capacity

(Denzau and North, 1994; Rubinstein, 1998). Second, an imagined institution can be

enacted without a voluntary, collective act. If all agents come to share self-enforcing

beliefs on the path of play, enactment occurs. These two stages of institutionalization canbe temporally distant, as an institution can remain imagined while agents update their

beliefs over time, or simultaneous.

To allow imagined institutions to shape social behavior without enactment, the behav-

ior of each agent i must be conditioned on the presence of imagined institutions. I

simplify the analysis by assuming that each agent i can be a member of at most one

coalition Cwith a single active institution C, so that these coalitions do not overlap:

CDis empty for all C=D. Thus, upon choosing an action at any time, each agenti

maximizes

ai arg maxAi

t

i

i(i)

t=

t ui(ati, ati(ti,)), (6)

where = (. . . ,C, . . .)Cis the present vector of currently active imagined institutions.

Thus, an imagined institution has a direct effect that changes the beliefs of each agent i

as to individual behavior. Yet the existence of an imagined institution does notimply that

agenti would necessarily play by its rules or even believe that other agents iwill play

by the rules. As my informal definition of an imagined institution suggests, on a most

general level, it is nothing but awareness of the possibility of enactment.

This formalization of imagined institutions is flexible. On the one hand, it permitsfully artificial coordination through imagined institutions in that any vector could in

principle effect a convergence of expectations.16 On the other hand, any vector could

certainly be linked to plausible behavioral conjectures determined by the transition rules

= (. . . , C, . . .), so that the content of an imagined institution is relevant.

To formally incorporate imagined institutions in the model, augment next the belief

space. First, it is plausible that announcements at time t change beliefs regarding

behavior, so use

ti =ti(

t1i , a

t1, mt1), (7)

where mt1 is the vector of announcements, instead of (5). Second, assume that eachagenti also assigns a subjective probability measure ti on these announcements:

ti =ti(

t1i , a

t1, mt1). (8)

To ensure generality, I omit the selection of a specific functional form. Note that

this generality again permits genuine surprises, so that agent i cannot even conceive

of announcement m at time t 1 but finds it rather likely at time t, perhaps because

the realized announcementmt1 contains institutional innovations that agent i was not

aware of.Finally, consider the decision to announce an imagined institution: at any time ,

m

i arg maxMi

Mi

i(mi)

ti

i(

i|mi)

t=

t ui(ati, a

ti((m, a

ti))), (9)



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Urpelainen 231

whereMicovers all imagined institutions from agentis perspective. The vector of active

imagined institutions is unaffected if m does not involve any coalitions C N

announcing an imagined institution and no extant imagined institution C transitions

to the terminal state . Notably, if agent i assigns zero likelihood on announcementm, itnever announcesm as long as there is any other announcement that produces a positive

expected utility. Since this technical condition is extremely useful in that it effectively

allows a partition ofMi into candidate (non-zero probability of activation at time )

and non-candidate (zero probability of activation at time ) imagined institutions, I

assume throughout there is always at least one announcement that produces a positive

expected utility.

This choice correspondence reflects instrumental behavior. An agent maximizes its

expected utility based on available information. This expectation can be entirely artificial

in that the agent does not expect anyone to behave according to the resulting imagined

institution; it is enough that the expected effect on choices made by others in the future is

beneficial for any reason. Perhaps more interesting is the possibility that the agent expects

behavior that corresponds to the imagined institution.

It is useful to consider in some detail the key simplifying assumption that I have

made. Specifically, upon choosing an announcement or an action, agent i is incapable of

engaging in higher-order reasoning to evaluate the effect of its current behavior on beliefs

of other agents in the future. Instead, the agent simply evaluates the expected value of the

direct effect of announcing an imagined institution, which consists of the probability that

others announce it too and the change in their individual behavior. This simplification is

important because it avoids the problem of recursive construction of equilibria over aninfinite time horizon. Since institutionalization by its very definition begins at an irregular

environment with limited supply of information, this restriction is plausible for cognitive

reasons. However, it is also possible to allow various signaling or bluffing behaviors

by choosing such a large type space that it is possible to interpret changes in beliefs

as effects of forward-looking strategic behavior. Thus, I conjecture that my construction

covers a large class of equilibrium behaviors produced by conventional non-cooperative

models.17 A plausible alternative would have been to explicitly model the evolution of

collective beliefs, perhaps as a Markov Chain that agents could strategically perturb.

However, such a formalism would only be meaningful if individuals held sophisticatedconjectures regarding the effect of their own behavior on others beliefs and behavior in

the future.

6. Towards a theory of institutionalization

The formal model lays the foundation for an investigation of institutionalization. I begin

with a social situation in the state of nature and examine the trajectory of social behavior

as a group of agents first generates imagined institutions and then enacts them. Against

this backdrop, I also consider the possibility of institutional change and demise.I illustrate the theory with examples of imagined and enacted institutions. I will give

pride of place to the study of social institutions imagined and enacted by large groups of

human beings. In particular, I refer to the imagined communities of Anderson (1983)

and the theatre state of Geertz (1980). The choice of something that is imagined or

theatre should help clear any ambiguity as to the purpose of these examples. I have



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chosen them to provide intuition and insight into the origins of social institutions, so they

are easy and well-known cases that cannot be used to empirically validate the theory. A

key benefit of my formalism is to show the interconnections between these two canonical

narratives, at least to the degree that they describe institutionalization.In the beginning, the society consists of individual agents that hold individual expec-

tations about the individual behavioral responses of other agents in some social situation.

Assuming that the physical and technological complexity of this environment is conse-

quential enough, these expectations are not precise. Cognitive limitations prevent indi-

viduals from holding detailed causal models, so uncertainty and ambiguity are central

determinants of individual best-response behavior.

The creation of imagined institutions begins when some individual agents succeed

in inductive inference to improve their payoff in the future.18 Minimal biological pre-

dispositions towards attributing collective intentionality to behavior by groups of agents

are needed for an individual agent to imagine collective behavior in the sense of coor-

dinated behavioral adjustments. If the most fundamental of social institutions, language

(Searle, 1995, 2005), exists in the background, agents begin to communicate symbolic

representations of collective behavior to other agents. At some point, these agents agree

that a particular image is a useful Archimedean point for understanding the social reality

that they commonly experience, so that its existence as a reference becomes common

knowledge.

This process cannot be cleanly separated from the prevailing physical and techno-

logical structure. In his examination of the birth of nations in Europe, for instance,

Anderson (1983: 49) concludes that the convergence of capitalism and print technologyon the fatal diversity of human language created the possibility of a new form of imag-

ined community, which in its basic morphology set the stage for the modern nation.

Without mass production of written documents, imagined institutions could not have

existed as common knowledge among the large groups of people that came to constitute

European nations as centuries passed by. The idea of common history or antiquity, some-

thing that no individual could really remember, had to be reconstructed and preserved in

publications.

What of power? Its role in determining which imagined institutions exist in individual

minds can also be investigated in the context of medieval and early modern Europe, in theadvent of nation states. Describing the relationship between Reformation and capitalism,

Anderson (1983: 49) writes how

Protestantism and print-capitalism, exploiting cheap popular editions, quickly created large

new reading publics ... and simultaneously mobilized them for politico-religious purposes ... it

was not merely the Church that was shaken to its core. The same earthquake produced Europes

first important non-dynastic, non-city states in the Dutch Republic and the Commonwealth of

the Puritans.

These passages illustrate activation and enactment, respectively. The creation of new

reading publics facilitated the strategic communication that prompted the activation of

the nation as an imagined institution,C. However, as the formalism shows, it is not nec-

essary that this strategic communication was part of some broader contract or bargaining

among elites. Regardless of why different individuals announced the nation, C, at time



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Urpelainen 233

t, in subsequent periods t+1 . . . nation states were enacted, as agents i Cbegan to

believe that the nation state was indeed regulating behavior by coordinating behavioral

responses,C on the path of play.

Initially, the resulting imagined institution could have limited impact on each indi-vidual agents behavior. Although a symbolic representation is commonly known among

the agents, they might not have incentives to play by the rules or respect the putative con-

straints; and even if they had these incentives, they might believe that other agents are

unwilling to undertake similar commitments. This state of affairs could survive for a long

period of time, with imagined institutions being deactivated and supplanted by others

every now and then. As time passes by, however, the agents begin to ascribe increasingly

precise behavioral strategies and heuristics to other agents. This is particularly easy to

achieve if the currently active imagined institution, perhaps measured as the number of

possible states in which the system can be (Bednar and Page, 2007), has a low enough

resolution.

If this process achieves a certain critical threshold, so that the agents come to believe

that the symbolic representation of an imagined institution actually represents patterns

of desirable collective behavior, and these patterns would indeed be self-enforcing in

the current social situation, they enact the imagined institution as an integral element of

social reality. This enactment can take various forms, such as an explicit contract or a

gradual, implicit convergence of beliefs and expectations.

At this point, the nature of social power could undergo a rather dramatic trans-

formation, as enacted institutions gain ground as elements of social reality. No better

presentation of this possibility exists than the following dramatic passage due to Geertz(1980: 102) who describes the theatre state in nineteenth-century Bali:

The ceremonial life of the classical negara was as much a form of rhetoric as it was of devotion,

a florid, boasting assertion of spiritual power. Leaping alive into flames... was only one of the

grander statements of a proposition made... there is an unbreakable inner connection between

social rank and religious condition. It was an argument, made over and over again in the insis-

tent vocabulary of ritual, that worldly status has a cosmic base, that hierarchy is the governing

principle of the universe, and that the arrangements of human life are but approximations, more

close or less, to those of the divine.

Negara is an extreme example of the wide range of possible worlds that enacted

institutions can create if put to proper use, as the distribution of power in that society was

not reducible to its physical or technological basis until the Dutch arrived.

In formal terms, ritualized leaping alive into flames can be thought of as an action

vector,At. As individual agents observed such behavior, they updated their beliefs, ti. I

conjecture that such updating was very consequential, both because (i) the action vector

At is virtually impossible to rationalize in the Balinese context without ascribing great

importance to negara and (ii) similar action vectors were repeatedly played against thebackdrop of an imagined institution.

Another illuminating possibility is a major exogenous shock that prompts the

enactment of a latent social institution. As Findley and Edwards (2007: 584) write

in their analysis of successful resistance by weak groups in violent conflict, such as

civil war:



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Prior to an identifiable, exogenous threat actors may appear disorganized and lacking in mate-

rial capabilities. Once a threat is introduced, however, nominally weak actors can demonstrate

sudden and dramatic shifts in capability to resist, thus pushing the actual costs of conflict well

above the predicted costs.

While Findley and Edwards (2007: 584) focus their efforts on characterizing the

effect of latent social institutions on the capability structure of a group, and a case study

of Chechen mobilization against Russia, the concept of imagined institution sheds light

on the microprocesses that allow individuals to ascribe forceful collective intentionality

to acts of resistance.

But in the absence of major exogenous shocks or unobserved endogenous develop-

ments that remove the preconditions for this particular form of collective behavior (Greif

and Laitin, 2004), an enacted institution generates regular patterns of collective behavior,

thus stabilizing the society. Here, the completion of the process of institutionalization

does not imply that the enacted institution is immutable. Even in the absence of struc-

tural shocks or other developments that remove the incentives to engage in coordinated

adjustments of collective behavior, the agents continue to announce other imagined

institutions,C = C, that they prefer to the currently active one. This simple possibil-

ity seems to have escaped many game-theoretic treatments of endogenous institutions,

which focus on the robustness of non-cooperative strategies in complex environments.

But in principle and in practice, there is no reason to expect that shared and self-enforcing

expectations about collective behavior would not change while agents act according to

the rules and constraints they have enacted. The agents could envision Pareto-improving

imagined institutions, which could then be enacted in a collective act. Thus, institutional

change is a natural consequence of the behavioral postulates I have adopted.

Equally important is the observation that shared and self-enforcing expectations do

not necessarily extend to counterfactuals. One of the major criticisms of conventional

game-theoretic treatments of institutions is the implausible cognitive capabilities required

for subgame-perfect Nash equilibria of all but the most trivial games.19 For an imagined

institution to be enacted, however, all that is required is that the agents have common

knowledge about the coordinated adjustments that deviations aresupposedto trigger. In

light of the present theory and formalism, there is no reason to presume that the agents

themselves believe these coordinated adjustments will be implemented. Those counter-factuals that never materialize are hardly useful raw material for convergence of beliefs,

as there is no scope for experimental learning. But to enact an imagined institution, a

group of agents must only share self-enforcing beliefs about behavior on the path of play.

Even if many of them continue to play by the rules for reasons other than the idealized

symbolic representation of the enacted institution entails, the external face of the enacted

institution remains unchanged. It therefore seems unnecessary to assume that the internal

face would be consistent with the agents beliefs anywhere except on the path of play.

Finally, the present theory can account for endogenous institutional demise (Greif

and Laitin, 2004). Shared and self-enforcing beliefs do not preclude the possibility thatinstitutional demise in the future is common knowledge, but no agent has an incentive to

unilaterally counter the trend. A group of agents can anticipate a disaster and continue

to debate various solutions to it by announcing alternative imagined institutions that could

avoid deactivation. Alternatively, it is possible that the shared and self-enforcing beliefs

are incorrect and the objective physical and technological constraints on social behavior



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Urpelainen 235

throw the system out of balance, even though all agents firmly believe that the enacted

institution is sustainable.

It is here that the elusive concept of leadership has genuine analytical value. In the

state of nature, leadership requires physical and technological advantages, as the allianceof Protestants and printing presses against the precarious power of the Catholic church

in late medieval and early modern Europe made clear. With the enactment of imagined

institutions, however, the link between brute force and social power is severed. One

certainly cannot deduce the elaborate, ritualistic power structures that made the theatre

state negara known to later generations from strictly physical or technological attributes

of the locals (Geertz, 1980: 135):

A structure of action, now bloody, now ceremonious, the negara was also, and as such, a

structure of thought. To describe it is to describe a constellation of enshrined ideas.

Where the elites of negara failed, however, was to prevent institutional demise through

institutional change. Their ability to create and communicate imagined institutions that

could adapt to pervasive foreign presence was severely restricted by the strength of the

theatre state. And thus, after a dramatic albeit uneven power struggle with the Dutch

(Geertz, 1980: 1113):

the king and court again paraded, half entranced, half dazed with opium, out of the palace into

the reluctant fire of the by now thoroughly bewildered Dutch troops. It was quite literally the

death of the old order.

To say that a social institution was deactivated here is perhaps an understatement.

7. Conclusion

I have examined the origins of social institutions. The extant literature has not provided

a plausible causal mechanism behind their emergence, although for different reasons.

The bottom line is that these works do not characterize the relationship between what

I have called the external and internal faces of institutions: how does a society movefrom social situation in the state of nature, with no institutional rules or constraints to

individual choice, to one where there are rules and constraints underpinned by shared

and self-enforcing expectations about collective behavior?

My analysis separates the process of institutionalization into two different subpro-

cesses. First, agents must generate common knowledge about the possibility of institu-

tionalized behavior. I have sketched this process as one based on strategic announcements

of an imagined institution that entails a symbolic representation of collective behavior.

Second, this imagined institution must become strong enough so that the agents share

self-enforcing expectations about collective behavior on the path of play. This temporalsequencing of the processes that generate the internal and external faces of institutions

avoids the incredible quantum leap that contract theories assume exists in the background

and evolutionary theories ignore.

The analysis has its limitations. Even though the agents in my model are strategic,

I omit the possibility that they act in the state of nature to manipulate the terms of



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institutionalization in the future. While plausible in an uncertain and ambiguous envi-

ronment, the assumption is theoretically restrictive. Future research should examine the

robustness of the posited two-step institutionalization against variations in the behavioral

postulates. The analysis also falls well short of generating empirically testable hypothe-ses. An important topic for future research is the development of empirically motivated,

theoretical applications. I hope my analysis will inform this line of inquiry.

Acknowledgements

I presented this work at the 2009 annual meeting of the Midwest Political Science Association

(Chicago, IL, April 25). I thank Jenna Bednar, David Cottrell, Eric Dickson, Michael Findley,

Mika Lavaque-Manty, Katri Sieberg, Michio Umeda, and David Wiens for advice. I also thank the

anonymous reviewers and the editors of the Journal of Theoretical Politics for their assistance.

Notes

1. Indeed, even language is ultimately a social institution (Searle, 2005).

2. The modifier imagined is due to Anderson (1983) who studied the role of imagined

communities as building blocks of nationalism.

3. For theories of collective intentionality, see Bratman (1992, 1993), Searle (1990, 1995),

Tuomela (1995), Tuomela and Miller (1988).

4. For ambiguities in the concept of methodological individualism, see Hodgson (2007).

5. For functionalist social theories, see Stinchcombe (1968).

6. See Zaibert (2003) for a critique of Searles notion of collective intentionality.

7. To be sure, this is not a challenge to the empirical applicability of the theory per se, as there

certainly are simple and conventional social situations in which equilibria can be selected under

common knowledge. But even then, contract theories remain incomplete, as the generation of

this common knowledge is exogenous.

8. An interesting partial exception is the notion that chaotic legislative behavior results in dis-

equilibrium unless structure is imposed on voting (Riker, 1980; Shepsle, 1986). This analysis

is incomplete, however, as the expectations of the outcome of disequilibrium voting are not

derived for individual agents. Instead, these chaos theorems propose ex hypothesithat stability

improves the situation for the legislators and the society.

9. Witt (1989: 155) labels this idea the Hayek conjecture.

10. Knight (1992) provides a powerful empirical critique of the analysis of conventions.

11. Young (1998) shows that convergence can also be evolutionary and based on nave, backward-

looking learning rules.

12. Specifically, Knight (1992: 128) claims that a Prisoners Dilemma game... can be easily refor-

mulated as a bargaining game. But instead of showing how the process of institutionalization

functions in such games, he cites the game-theoretic literature that shows the possibility of

cooperation in repeated games. As I have argued above, such equilibrium analysis cannot shed

light on institutionalization.

13. But as Wydra (2007: 26) notes, the post-communist concept of democracy is quite different

from her Western sister for historical reasons: the emergence of democracy... has been, to animportant extent, a quest for meaning and self-grounding in response to traumatic experiences

within communism.

14. For a rigorous analysis using the concept of self-confirming equilibrium, see Fudenberg and

Levine (1993).

15. Schotter (1981) adopts a similar information structure.

at University of South Australia o

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Urpelainen 2011 the Origins of Social Institutions