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A simple theory of 'meso'. On the co-evolution of institutions and platform size--With an application to varieties of capitalism and 'medium-sized' countries

By Wolfram Elsner and Torsten Heinrich

Abstract

This paper deals with institutional emergence in the well-known 'evolution of cooperation' framework and focuses on its size dimension. It is argued that some 'meso' (rather than 'macro') level (to be numerically determined) is the proper level of cultural emergence, diffusion, and retention. Also Schumpeterian economists (K. Dopfer et al.) have discussed institutions as 'meso' phenomena, and Schelling, Axelrod, Arthur, Lindgren, and many others have dealt with 'critical masses' of coordinated agents, including related segregations of populations. However, the process and logic of emergent group size has rarely been explicitly explored so far. In this paper, 'meso' will be explained, in an evolutionary and game-theoretic frame and a population perspective, in terms of a cooperating group smaller than the whole population involved. Mechanisms such as memory, monitoring, reputation chains, and active partner selection will loosen the total connectivity of the deterministic 'single-shot' benchmark and thus allow for emergent 'meso'-sized arenas, while expectations to meet a cooperative partner next round remain sufficiently high. Applications of 'meso-nomia' include the deep structure of 'general trust' and the surprisingly high macro-economic and macro-social performance in 'small' and 'well-networked' countries which helps to explain persistent 'varieties of capitalism'. A strategy for empirical application of the theoretical approach and some first empirical indications of its relevance are presented.Evolution of cooperation Emergence of institutions Group size Network size Expectations Social capital Trust 'Meso' -economics Varieties of capitalism Small countries

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