Technological change and institutional inertia: a game-theoretic approach

Abstract

In this paper, we study a co-evolutionary model of economic change at two hierarchical levels. At the lower level, “institutions” are given and the focus is on how resources are allocated and innovation produced in response to the pay-off structure induced by prevailing institutions. At the higher level, it is the institutions themselves that change as the outcome of a process of social bargaining. The main objective of the paper is to study the interaction between these two levels of change, attempting to provide some insight on issues like technological/institutional divergence, technological dead-end, institutional inertia, etc.