Abstract
This is an entirely new draft of the sixth chapter of my book 'Foundations of Evolutionary Economics' which is going to be published by Edward Elgar in due course. With permission of the publisher, the draft chapters are posted on the web to facilitate academic discussion for further improvement. Previous versions have been removed from the SSRN site.The chapter presents a theory of institutions that focuses on their cognitive foundations and the enforcement mechanisms. Institutions are manifestations of performative actions by actors in networks of interactions, which are caused by conjunctions of population level sign systems and neurophysiologically anchored dispositions. I analyze the cognitive dynamics of the emergence of institutions. At the same time, enforcement of institutions results from evolving configurations of power in networks, showing different features, depending on the size of groups and on the impact of institutional competition. I present a stylized history of institutions that highlights the specialization dilemma between enforcers and producers, which creates strong incentives for predation on part of the former. The chapter ends with outlining a conceptual framework for a time-dependent taxonomy of institutions.
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