"Climbing the Hierarchical Ladders of Rules": the Dynamics of Institutional Framework ♣

We analyze the process of emergence and evolution of institutions by pointing out how self-interests shape the design of institutional settings. We provide a framework in which “local and voluntary” institutions endogenously turn into more “generic and mandatory” ones. This leads us to analyze how a competitive process is automatically launched when institutions are decentrally created by agents, which leads to a race for generalization by which promoters of local orders are led to promote adhesion to their preferred rules among alternatives. We see then institutions as sponsored by groups of core members — often the founders — who have incentives, in certain circumstances, to cooperate with other sponsors playing on the same battlefield or imposing a higher rank order.