Galaxy mergers may produce active galactic nuclei (AGNs) by repopulating stellar loss-cone orbits around a central black hole. In the companion paper we derived a local bolometric luminosity function of AGNs based on this process. In this paper we interpret the observed cosmological evolution of the luminosity function of AGNs as due to evolution of the merging rate among galaxies after their formation at a redshift of approx.3. An important difference between our model and previous (empirical) models is that the evolution depends on galactic (stellar) luminosity instead of central nonthermal luminosity. The radio counts at 1.4 GHz and optical counts are reproduced by the model if the merging rate of the galaxies at the bright end of the galaxy luminosity function evolves considerably faster than the merging rate of the smaller galaxies. The theoretical and observed luminosity functions at high redshift have similar characteristics: (i) at high luminosity the evolution is best described by luminosity evolution, and (2) the luminosity function has a maximum at approx.10/sup 3/ Gpc/sup -3/, which is the space density of the most massive galaxies. A large fraction of these galaxies are presumably formed in the precursors of rich clusters. Their merger rate is highmore » initially and declines rapidly on a time scale of a few billion years. If the initial density fluctuation spectrum for protoclusters of mass M/sub cl/ has the form deltarho/rhoproportionalM/sup( -1+n//3)/2/sub cl/, then the steep evolution of the most luminous galaxies suggests nroughly-equal-1.3 at a redshift of approx.3, which is consistent with the observed clustering of galaxies.« less
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