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The Journal of Socio-Economics 40 (2011) 178–191

Contents lists available at ScienceDirect

The Journal of Socio-Economics

journa l homepage: www.e lsev ier .com/ locate /soceco

lternative routes of political change: Elites fracture or social mobilization,conomic incentives or cultural thresholds

onzalo Castaneda ∗

l Colegio de México, Centro de Estudios Económicos, Camino al Ajusco No. 20, Pedregal de Santa Teresa, Ciudad de México, 10740 México, Mexico

r t i c l e i n f o

rticle history:eceived 6 August 2009eceived in revised form 21 July 2010ccepted 5 September 2010

EL classification:1652

a b s t r a c t

This paper presents a theory of political change that combines structural and strategic elements whichdetermine elites’ degree of fragmentation with cultural factors that exert an influence on the cohesivenessof civil society. Therefore, political change is seen as an outcome of modifications in the bargainingpositions of these two segments of society which, in turn, are transformed through economic dynamicsand the propagation of certain cultural variants. With evolutionary theorizing and bounded rationality,it is possible to explain the co-evolution of socioeconomic variables, as well as the importance of thehistorical legacy in establishing different routes of political change.

73

eywords:ollective actionlitesolitical change

© 2010 Elsevier Inc. All rights reserved.

ultureoverty traps

. Introduction

There is no doubt that the most intriguing phenomenon inocioeconomic development is the presence of sustained dispari-ies in the long term performance of societies around the world. Onhe one hand, there is a large set of societies that are stuck in differ-nt forms of poverty traps or inefficient equilibriums where incomeer capita is relatively low, income distribution is highly skewed,ule of law is absent, political instability prevails, corruption isndemic and social capital is limited.1 On the other hand, theres a small group of societies that are way ahead of the rest becausehey move in high income paths or efficient equilibriums where theolitical and judiciary systems exhibit counterweights, and whererust in institutions and interpersonal trust are widespread. There-

ore, a central question in the social sciences is how can a society

ove from the inefficient equilibriums to the efficient ones?At the theoretical level, two explanations are usually offered

n the literature: one centered on strategic decisions of elites and

∗ Corresponding author. Tel.: +52 55 5449 3000x4064.E-mail address: sociomatica@hotmail.com.

1 For instance, Collier (2007) distinguishes four distinct types of poverty traps forountries at the bottom which account for around a billion people. Countries withifferent income levels, like Chad or Mexico, are said to be in a poverty trap if cur-ent political and economic incentives preclude them to escape from an inefficientquilibrium.

053-5357/$ – see front matter © 2010 Elsevier Inc. All rights reserved.oi:10.1016/j.socec.2010.09.001

the other on the presence of a social dilemma where the pursuitof individual benefits generates a Pareto inefficient outcome.2 Inthe former explanation, the structure of the society is seen as azero-sum game where any political concession implies a gain toordinary individuals and a loss to elites. In the latter explanation,the structure is seen as a positive-sum game where the differentsegments of society have a lot to gain if they are capable of solvinga collective action problem characterized by individual incentivesthat are not consistent with collective rationality.

Many authors have argued that the power of elites is continu-ously used to block political change and, hence, the institutionalreforms conducive to growth, stability, democracy and a moreequitable income distribution are hampered. Therefore, the insti-tutional inertia is explained in terms of strategic decisions of eliteswho have stronger incentives than ordinary individuals to investin the formation of coalitions (e.g., Acemoglu and Robinson, 2006,

2008). Under this view, a political change is accepted by elites onlywhen their de facto power is severely curtailed. The modification inthe bargaining position of elites vis-à-vis a large population may bethe result of technological changes, terms of trade shocks or revolu-

2 In this paper, elites are treated as a minority group whose strategic positionin pivotal sectors and organizations of society confers on them the possibility ofdirectly affecting political and economic outcomes at the aggregate level. The mem-bers of this segment of society do not always act concertedly, and they pursueinterests in diverse arenas: economic, political, military and religious.

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ionary sentiments that appear when people’s income deteriorateselow a certain threshold.

Notice that in this approach the elites act as a compact grouphile the civil society is assumed to be fully atomized.3 Hence,espite being composed of a large number of individuals, it lacksny bargaining power unless a certain threshold of life deteriora-ion is reached. This theory is inconsistent with key facts of politicalhange in the history of civilizations, such as the continuous frac-ures observed in elites and the social mobilizations that take placeefore critical institutional reforms.4 A well-rounded theory haso include the strategic decisions of elites that in certain circum-tances prefer to search for alliances outside the inner circles ofower than to be part of a compact group and the capability ofivil society to solve the collective action problem that weakens itstrategic position.

With respect to the social dilemma view, neoclassical theoriesre formulated to explain the lack of cooperation required to solveroblems of negative externalities, such as pollution or overex-loitation of natural resources or the scant supply of public goods inocieties. Because pro-development institutions are a type of pub-ic good, the theory of collective action at the macroeconomic levels also used to explain the presence of poverty traps. Why should Iay my taxes if no one else is contributing and government misallo-ates fiscal revenues? Why should I behave honestly if the judicialystem is inefficient and corrupt, and most of the population isheating? Traditionally, the theoretical response in the neoclassi-al camp to this problem has been to create incentive-compatiblenstitutions to induce cooperation and Pareto optimality. However,his response only leads to a social dilemma of a second order. Whos going to fairly enforce contracts? Who is going to monitor andanction the new rules without asking for bribes?

The collective action problem and the opportunistic behaviorf some individuals are well known facts, yet a full understandingf the solutions that have emerged in different societies lies out-ide neoclassical theory. The assumptions of perfect rationality andgoistic preferences discard by definition any possible solution inealistic situations of large size populations. Consequently, a morenlightened approach is to take into account the evidence foundn studies of psychology and behavioral economics with regard touman conduct and to pay attention to socio-cultural theories thatonsider that individuals are embedded in a social context.5

Accordingly, in this paper a formal model is developed to explainhe different routes of political change that a society can experi-nce (Bunce, 2000; Doorenspleet, 2004). In certain situations, thesehanges are the result of elite fragmentation, but in others, they

re an outcome of social mobilization. Whatever the immediateause of political change, the modifications in the strategic posi-ion of elites vis-à-vis civil society are a consequence of continuousransformations in both economic incentives and cultural orienta-

3 In this paper, the term civil society is used to refer to the collectivity of indi-iduals in a society who are neither directly involved in public policy nor in topevel decisions of the commercial/entrepreneurial class. In this sense, civil societys seen as the third segment of society that has its own informal rules of interac-ion and social engagement to be applied beyond family circles. Thus, civil societyan be composed of isolated individuals and social networks or by a set of volun-ary associations, such as charities, NGOs, religious groups, professional associationsnd community based organizations. The degree of coordination between theserganizations to pursue a shared interest is related to their capability of collectivection.4 For a list of references with historical comparative studies on the influence of

ivil society on democratizing governments, see Doowon (2006).5 The traditional cultural theories of political and economic performance are not

seful to explain political change (Eckstein, 1988). These theories assume that cul-ural orientations are independent variables and, hence, they are formulated toxplain the status quo and the observed diversity in societies’ institutions and per-ormance.

conomics 40 (2011) 178–191 179

tions. For an analytical model that combines culture and strategyto be viable, it is necessary to take an eclectic perspective whereelements of behavioral analyses are combined with evolutionarytheorizing.6

The remainder of the paper is structured as follows. Section 2presents a narrative of political change. Section 3 develops a formalmodel with tools of evolutionary game theory. Section 4 repro-duces the propagation of a participative orientation that fosterspolitical change. Section 5 explains how this political change canalso be an outcome of elites’ fragmentation. Section 6 constructsa scenario where society experiences a temporary period of trans-gressive contention. Section 7 asserts that the model rationalizesempirical findings that suggest the importance of history and therelevance of cultural orientation for political change.

2. An analytic narrative of political change

Not all individuals in a large society are equal since elites arethe ultimate actors that engineer constitutions, establish institu-tions and implement public policy. In contrast, the influence of civilsociety on society’s vision and development depends mainly on thestrength of a subset of individuals who are able to integrate organi-zations with enough size and cohesion to push forward their ownagendas. In a participatory society, institutions reflect the deeplyrooted interest of civil society, either because some of the youngcohorts of the elite have internalized values that are akin to theorientation of the rest of the population, or because the politicalleverage of elites has been conditioned by the strength of civil soci-ety. Therefore, political change and the transformation in the socialorder are always the result of a shift in the bargaining strength ofelites vis-à-vis civil society.

Given that neither elites nor civil society are compact sets ofhomogeneous agents that act in unison, the relative bargainingpower of these two segments of society depends on their degree ofcohesion. The more fragmented a particular segment, the weaker itsbargaining strength. Accordingly, a relatively fragmented segmentis less likely to impose its particular policies and agendas when thesocial order is established (Moore, 1966). A social order with extrac-tive institutions prevails when the few factions that integrate theelite form a relatively compact front and civil society is atomizedbecause ordinary individuals have not solved their collective actionproblem.7 In contrast, a progressive social order prevails when theelites’ factions are fractured and important groups of civil societyact in a coordinated fashion.

The degree of cohesion in each of these segments of societyvaries over time for different reasons. In the case of elites, the degreeof cohesion is related mainly to economic disparities and incen-tives. That is, the decision to break apart is the result of strategicdecision-making in a context of political tension generated wheneconomic disparities among them are too large. In the case of civilsociety, the degree of cohesion is associated with cultural orienta-tion. Collective rationality dominates individual rationality when

a large segment of the population presents values (or internalizedsocial norms) where the common good (or social duty) is aboveindividual interests.8

6 This approach is advocated by Nobel Prize winner Elinor Ostrom (2000) forconstructing a realistic theory of collective action.

7 With extractive institutions, property rights are poorly protected from thepower of elites who can implement different actions to obtain rents from the citi-zens’ efforts and resources. In contrast, non-extractive (or progressive) institutionsattempt to level the playing field and to set up market mechanisms that are notbiased in favor of elites’ interests. For more detail on these concepts, see Acemogluand Johnson (2005) and North (1981).

8 In a panel study with data from a national sample of West Germany, Finkel andMuller (1998) show that individuals participate in protest activities when they have

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.1. Elites’ incentives to break apart

The few factions that compose the elite experience a divisionhen two main conditions are met: (i) the power bases for the dif-

erent factions become unequal and, hence, political tensions starto build up, and (ii) the different factions decide strategically toght to become the ruling elite with full control of policy-making.

n contrast, civil society is fragmented when its social governances characterized by opportunistic behavior and, hence, its collec-ive action problem remains unsolved. In this setting, individualsave a conformist orientation since they prefer to comply with theolicies and institutions delivered unilaterally by the ruling elite.

A faction’s power base is related to the flow of income gener-ted with the assets that the group controls; for instance, agrarianlites can own large extensions of land and industrial elites canwn exclusive rights to import critical inputs. Therefore, an exoge-ous change in terms of trade favoring manufacturing products can

ncrease the power base of industrial elites to the point where thenequal distribution in income generates political tensions and atrong incentive for the agrarian elites to fight in an attempt toecover some of their lost benefits.9 Once in a stage of tension, eachf the competing factions decides if it is convenient to be involvedn a power struggle. This decision is made strategically as long ashe factions are aware that a fight can inflict a decrease in bene-ts, either because part of the income-generating resources can beamaged during the struggle or because there are monitoring andolicing costs for keeping the adversarial factions under a leash.urthermore, the loss in the power base of the victorious group cane so steep that to maintain some of its privileges the ruling elitesre pressed by members of civil society and other factions to acceptonstraints to their discretionary actions.

.2. Dynamics of cultural orientations and their consequences

In the short term (decades), cultural orientations are consid-red rigid, and therefore civil society’s ability to solve its collectivection problem is determined historically. Taking a long-term per-pective, culture is an endogenous variable modified through ao-evolutionary process where aggregate economic performancenfluences the propagation of cultural traits and vice-versa. Mem-ers of civil society look at previous experiences and learn sociallynd individually how to behave; that is, certain behavioral traitsend to be imitated. When the set of individuals that in the pasthowed a collective-oriented (or participatory) stance are economi-ally more successful than individuals with the conformist variants,he former group tends to be socially respected and its values areeplicated.10

While the coordination capabilities of civil society change overime through cultural transformation, the power bases of the dif-

erent groups of the elite are also modified endogenously throughconomic dynamics. When the number of participative individualsncreases, there is a change in political attitudes and in the produc-ivity and labor interests of civil society. For instance, a growing

ollective interests (e.g., dissatisfaction in the provision of public goods, belief in theuccess of group actions and belief in the importance of individual participation forhe success of the group).

9 Large disparities can create psychological resentment and a sense of injusticehat needs to be remedied. When the different factions of the elite have similarower bases, none of them dare to start fighting because costs can be too large andenefits too small.10 According to Berman (2001) a cultural theory in political analysis requires spec-fication of how ideas are spread through society, how norms are institutionalizedn the behavior of individuals and organizations and how culture affects politicalutcomes. Thus, the model developed in this paper deals explicitly with the firstnd third questions.

conomics 40 (2011) 178–191

population of participative individuals might be more inclined towork in the manufacturing sector, with more creative and produc-tive duties, than in an agrarian sector with more repetitive tasks.This shift in the population from one economic sector to anotherproduces modifications in the income flows generated with theassets owned by the different elites and results in a situation thatcreates economic disparities within the elite and changes in theincentives of strategic decisions.

2.3. Political changes: fractures among elites’ factions and massmobilizations

Societies now considered advanced previously experienced aseries of political changes where elites had to accept more contes-tation in political affairs and wider participation in the design ofinstitutions and public policy. Even these societies had previouslybeen ruled by elites with enough political and economic muscleto impose extractive institutions and a social order where threatof repression was enough to guarantee the continuity of the statusquo. Yet, after a period of time, some of them were able to generatea political change in favor of a progressive social order wherein theruling elite was willing to protect political and economic rights ofcivil society.

Although fragmentation was the first step to weaken elites’ bar-gaining position, the continuous divisions observed historically inthis segment of society indicate that deep political changes wereproduced only when this fracture created incentives to establishalliances with members of civil society and accept rules of engage-ment among factions to avoid future confrontations, as suggestedby North et al. (2009).11 In both cases, these negotiations producedthe creation of impersonal institutions where elites had to acceptthe reduction in their privileges to those prerogatives that could beprotected as rights. Political change was always the result of shiftsin bargaining strengths; however, societies that were successfulin establishing a progressive social order did not follow the sameroutes since they varied according to a combination of factors.

One of the possible scenarios could have been that elitesremained relatively united, yet they observed a sharp reduction intheir bargaining power due to increased cohesion in civil society.This latter segment of the population was capable of organiz-ing large social mobilizations once participation reached a certainthreshold and individuals started to defend their collective inter-ests despite personal costs. This case corresponds to a situation ofcultural modification through demonstration effects given that par-ticipation pays off even during a period of extractive institutions.12

Alternatively, elites could fracture because the increased numberof participating individuals enlarged the power base of a particu-lar faction (e.g., industrial elites) and thereby generated politicaltensions. The power struggle and the tense political environment

required that the victorious group established impersonal institu-tions to protect some of its privileges and status as a ruling elite.This case corresponds to a scenario of changes in economic incen-tives and struggles among elites since civil society was not active

11 These authors present a conceptual framework for studying political transfor-mations that assume that elites are a collection of factions with conflicting interests.Likewise, they suggest that a transition from limited to open access orders requires,firstly, the establishment of impersonal rules among elites’ factions and, secondly,the extension of those rights to other segments of the population, among otherconditions.

12 Rothstein (2000) presents an alternative argument for solving social dilemmas interms of cultural transformations. For this author, trust in other persons is requiredfor collective rationality and this type of trust can be stimulated by fostering trustin institutions of law and order. The latter can be achieved constructing the appro-priate collective memory (cultural representations that define society’s perceptionon its own societal beliefs and structure of relationships) through the interventionof political entrepreneurs acting strategically.

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n social mobilization and had difficulties in setting, by itself, coun-erweights to the social order.

.4. Democratization and social mobilization

The literature on political change has not paid enough atten-ion to the cultural orientation of civil society as a contributingactor to democratization (see Welzel, 2006 and cited references).t most, it has been argued that certain pro-democratic mass atti-

udes flourish once a democratic social order has been established.n contrast, the literature on social mobilization emphasizes thatollective action is feasible only when individuals exhibit a com-on attitude. However, in this latter literature, the emergence of a

ocial movement is explained as a result of changes in opportunitiesnd constraints determined within the elites’ camp; hence, cultureecomes a relevant variable only when the strength and coveragef the mobilization has been defined. It is argued that inherited atti-udes from the social context and ideologies fostered by leaders ofhe social movement are critical for its success (Tarrow, 1998).

These theories of social mobilization do not explain how thenderlying culture is transformed and, thus, they limit themselveso analyzing mass protests in a specific social order. For those caseshere a discrete institutional change is under analysis, such asdemocratization process, these theories take social governance

s given and then explain how civil society is capable of knock-ng down the status quo. By contrast, the model developed heres built to explain profound political changes that create institu-ions conducive to a progressive social order, characterized by annlarged set of political and civil rights, and for this purpose theodel will explain how culture co-evolves with society’s economic

erformance.13

. An evolutionary model of political change

In this section, an evolutionary model is articulated to analyzeolitical change as an outcome of a combination of factors: strategicecisions of elites and key actors of civil society and modifica-ions in their degree of cohesiveness (or bargaining strength) eitherhrough changes in elites’ economic incentives or transformationsn the cultural orientation of civil society. In each stage of this evo-utionary game, the ruling elites and the participative membersf civil society negotiate the institutional agenda or social order.herefore, for the stage game to start, it is necessary to preciselyefine the actors involved in each side of the negotiation process.

The ruling elite can be composed of a compact group when therere no divisions within this segment of society or by a victoriousaction when elites fracture and decide to struggle for power. The

embers of civil society that are willing to push forward theirhared institutional agenda are those individuals that exhibit a par-icipative orientation; thus, the cohesiveness or coordinated actionf civil society depends on the number of individuals in the pop-lation with a disposition to defend their rights. The composition

f both ruling elites and a participative civil society depends ulti-ately on variables that change through time but are considered

arameters during the negotiation stages. For elites, the rigid vari-ble is the power base that determines the relative bargaining

13 ‘Liberty aspirations’ is the type of cultural variable that the following theoreticalodel takes into account when describing values that motivate the participation

f civil society in elite-challenging actions. Welzel (2006) constructs this variableith three indicators of the World Value Survey related to post-materialism values:

seeing that people have more say about how things are done at their jobs and inheir communities’, ‘giving people more say in important government decisions’ andprotecting freedom of speech’. You can determine a society’s ‘liberty aspirations’ byonsidering whether the society’s citizens agree with the factors enumerated in therevious sentence.

conomics 40 (2011) 178–191 181

strength of the different factions. For civil society, the rigid vari-able is the cultural orientation that defines the propensity of theordinary individual to challenge elites’ agendas and public policies.

In the mathematical model developed herein, these variablesare synthesized in one concept: the fraction of the population thatexhibits a participative orientation vis-à-vis a conformist stance.For reasons of analytical tractability, it is assumed that this vari-able affects the cohesiveness of civil society and the power baseof the different types of elites since its transformation alters theincome flows generated by the assets controlled by each faction.Say, for simplicity, that the power base of each faction depends onthe number of individuals that work in the economic sector underits control, and that the labor supply available to each sector isrestricted by the skills of workers. For this reason, only two fac-tions are considered in the model (industrial and agricultural), andthey recruit a specific type of worker (participative or conformist)with a particular skill.

Finally, the model is closed by implementing an evolution-ary framework that determines how the participative orientationspreads in the population over time. That is, the model presents asocial learning component where the differential pay-offs of a repli-cation equation determine the diffusion rate of cultural variantsand, hence, the number of individuals in the population willing tonegotiate with elites and the size of the power bases that conditionthe strength of each elite faction.

It is important to emphasize that the model does not attemptto capture the details behind the mechanics of economic growthor to explain the effects of certain political and economic institu-tions on economic development. Instead, the objective is to identifyconditions that are required for a society to move from the statusquo, characterized by low income and extractive institutions, to aprogressive social order with high income and law abiding elites.14

3.1. The structure of the negotiation game

Ruling elites and the coalition of participating members of thepopulation set up the social order in a two-person stage gamewhere behavior is defined through a bounded rationality scheme.Ruling elites design and apply the law and extract rents from pro-ductive activities when institutions are weak. In contrast, wheninstitutions are progressive the law is universally applied andit is assumed that income distribution improves and the econ-omy becomes more productive. Elites control the state apparatusand possess critical information that allows them to know certainmoves of the members of civil society. This information is used bythe elites to determine whether civil society will be passive duringnegotiations or will mobilize forcefully to protect its rights.

Civil society is composed of individuals who hold different cul-tural orientations and are obliged to follow the rules established byelites. The members of civil society with a participative orientationhave a motivation to push their agenda in the negotiation of insti-tutions, while the conformist members are reluctant to use anybargaining power to alter the prevailing institutions and insteadpassively accept the rules and the income share that elites haveselected for them. The cultural fragmentation of the population cre-

ates a rivalry between the two variants of individuals (participativeand conformist). This fragmentation cost can be interpreted eitherin psychological or economic terms as the individual cost of beinga member of a minority.

14 As suggested by North et al. (2009), empirical evidence over the past two cen-turies indicates that economic progress and political development exhibit certainsynchrony. These authors show that most of the countries that are rich (as deter-mined by income per capita) also have the highest rating of political institutionsaccording to the Polity data set. Oil producing income economies, whose indicatorsof democracy are very low, are among the exceptions.

182 G. Castaneda / The Journal of Socio-Economics 40 (2011) 178–191

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The players, actions and pay-offs that define the structure of thistage game are summarized in Fig. 1. Ruling elites (E) can chooseetween two possible actions: ‘respect’ or ‘abuse’ the civil and polit-

cal rights of the public at large, while participative members (PM)an ‘comply’ with any law and public policy, even if they emanaterom extractive institutions, or ‘mobilize’ in an attempt to buildnd sustain non-extractive institutions. This setting describes fourheoretical regimes (status quo, progressive, contention, and tech-ocratic), but only three of them have empirical relevance.

Many societies can easily be identified with the use of extractivenstitutions supported by abusive elites and passive citizens (sta-us quo regime). Other societies are composed of non-extractivenstitutions with elites abiding by laws and citizens who are readyo mobilize to defend their rights (progressive regime). A thirdroup experiences a disruptive transition in which PM mobilize,rotest, and boycott at the same time that elites use repression in anttempt to sustain the extractive institutions (contention regime).n contrast to the three other regimes, it is rare to observe countries

here the members of the civil society had a permissive attitudehile elites were willing to reduce their own privileges and respect

ndividuals’ rights. This outcome would require an illustrated andenevolent technocracy promoting institutions conducive to theell-being of the majority (technocratic regime).

Nonetheless, the actions that can potentially produce the tech-ocratic regime are not neutral since its pay-offs, and those underhe contention regime, represent bargaining weights for E and PM.n the terminology of Knight (1992), these pay-offs can be inter-reted as breakdown benefits that each coalition receives in casene of the two social orders (status quo and progressive) is uni-aterally destabilized.15 In this formulation, a tacit agreement thatustains the status quo is preferred by the elites, while an agreementhat leads to the progressive order is preferred by the participative

embers. Accordingly, elites do not have an incentive to stick withhe established social order when the parameter Be of the break-own benefits is relatively large, and the PM are reluctant to obey

he agreement when the parameter BS is relatively large. To sim-lify the algebraic manipulations, the pay-offs in the technocraticnd contention regimes are assumed identical.16

15 Formally speaking, a process of bargaining is characterized by a sequence offfers and counteroffers. However, in the setting of a non-cooperative game, theerm bargaining refers to the idea that there are strategic differences between thelayers that can tilt the solution of the game towards a particular equilibrium.16 In fact the realization of the technocratic scenario can be ruled out for specificarameter values.

s quo contention

egotiation game.

It is important to clarify that the pay-offs for the column playercorrespond to a representative PM of the civil society while thepay-offs of the row player correspond to the ruling elites, which inthis particular case are integrated by the whole coalition. Therefore,this model assumes that, within the set of PM, the individuals arehomogeneous and all decide to comply or mobilize in unison. Thisassumption is adopted here to simplify the math, since the presenceof the conformists in the model allows the generation of a relativelyrealistic pattern where only a subset of the civil society mobilizes.The reader should remember that, behind the two-person game,there is a collective action problem for civil society reflected in thefact that the behavior of the representative PM depends upon thepercentage of individuals who exhibit a participatory attitude.

The pay-offs in the four regimes depend on the number of mem-bers of the civil society who have participatory values (x) and,thus, standardizing xt ε [0,1]. This variable measures the degreeof cohesiveness in civil society and affects breakdown benefits, thefragmentation costs, and the amount of resources extracted by theelites. In the status quo, the PM comply with an abusive order wherea fraction (� < 1) of participative and conformist individual’s income(L and C, respectively) is extracted and the elites receive a total of�Lx + �C(1 − x) in addition to the R that is obtained in a hypotheti-cal setting where institutions protect property rights.17 Notice thatthe income of the representative PM is defined by L(1 − �)−�(1 − x),while the income for a conformist member (CM) is defined byC(1 − �) − �x, with C < L if it is assumed that PM are relatively moreproductive.18 The second terms in these two expressions representthe fragmentation costs; thus, the larger the number of PM, thehigher (lower) the cost that that conformist (participative) pays forbeing a minority (majority).

In the progressive social order, rights are protected and institu-tions are able to create proper incentives. Thus, the productivityof the PM increases for an income of H > L and elites can onlyobtain the amount of revenues (R) that is feasible when abidingby the law. In the contention and technocratic regimes, the pay-offs describe breakdown benefits. Thus, the more cohesive the civil

society (larger x), the lower elites’ breakdown benefits and the lesswilling they are to accept political changes; however, a cohesivecivil society has more capabilities to destabilize the status quo.That is, Be(1 − x) and BSx are part of the pay-offs of elites and PM,

17 Notice that the total extraction of elites is calculated by multiplying the amountextracted to each participative member and to each conformist member times x and(1 − x), respectively.

18 The incomes of the CMs are not presented in Fig. 1 because they decided not tobe included in the process of negotiations.

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G. Castaneda / The Journal of S

espectively. Notice also that the civil society’s pay-offs in thesewo regimes include a term for the fragmentation costs. From theell values in Fig. 1, it is easy to show that the national income (sumf the E’s, PM’s and CM’s pay-offs) in the status quo (Ysq) is lowerhan in the progressive regime (Ypr), as described by the followingxpression:

sq − Ypr = (L − H) x < 0 (1)

This expression shows that the difference between the twoegimes is related to the low productivity of PM in the status quo.he gap increases with the number of PM and, hence, the cohesive-ess of society determines how large the potential is to improveational income when an institutional reform is adopted.

When describing the elites’ benefits in Fig. 1, it is assumed thatll factions act concertedly, but this situation does not always hold.he model assumes that there are two factions, one controllingesources in the ‘L’ sector and the other in the ‘C’ sector, with eachequiring a particular type of worker (PM and CM, respectively).herefore, the power bases for the ‘L’ faction and the ‘C’ faction areefined as RL + �Lx and RC + �C(1 − x), with R = RL + RC, respectively.

f there is political tension between these two factions, to be for-ally defined below, and if they decide to fight for power, then

he faction that is victorious rules society and its benefits in thextractive social order are defined with the following expression:iRi + �x[L − C] + �C for i = L or C with 0 < ˛i < 1. This expression indi-ates that the victorious faction absorbs unilaterally, as a winningrize, the control of the two productive resources in the economy,et it experiences a loss in the non-productive source of income˛iRi). The latter can be interpreted as the dispute or belligerenceosts; that is, the costs of monitoring and policing activities thateep operating the rules of engagement between factions in a set-ing of declared conflict irrespectively of who won the fight.

.2. Conjectures and decision-making

Once the different regimes and corresponding pay-offs haveeen defined, the next step is to determine whether or not a politi-al change that moves society from the status quo to the progressiveocial order is possible. The type of social order that can prevail islosely linked to the nature of the conjectures made by PM withegard to the actions of the elites, which, in turn, depend on his-orical experience (i.e., social experiences that change very slowlynd only when conclusive evidence contradicts beliefs). If hyper-ationality were assumed, the problem described in the pay-offatrix of Fig. 1 could be solved by means of the classical game

heory and the Nash-equilibrium (NE) solution concept. Therefore,t only requires algebra to show that, when the following condi-ions are met, both the status quo and the progressive social orderre NE in a scenario of compact elites:

> Be, L(1 − �) > Bs and H > L (2)

While the last inequality holds by definition, the other twonequalities have to be imposed if the possibility of unilateral devi-tions from the status quo and the progressive social order are to beuled out. Notice that these conditions do not depend on the degreef cohesiveness of society.19 However, in this paper’s model, a solu-ion by classical game theory is not considered and, instead, the

layers exhibit bounded rationality. Players’ conjectures are formu-

ated with different sets of information so that a sequential solutiononcept is applied. With sequential decisions, the heuristic rules ofecision-making for the players are applied in a specific order and,

19 Yet, it is important to mention that these two orders can still be NE with weakeronditions that depend on the value of x.

conomics 40 (2011) 178–191 183

thus, the decision of the player with the wider information set isdetermined at the end, which in this case are the elites.20

Under the scheme of heuristic decisions, PM selects a pure strat-egy (i.e., with probability of 1) based on a conjecture regardingthe likelihood of the abusive stance of elites. Next, elites, who areaware of this rationalization, know with certainty the choice of PMand select a strategy accordingly. This solution concept discardsthe assumption of common knowledge, where each player is ratio-nal, knows that the other is rational, is aware that the other playerknows that each player is acting rationally, and so forth. Moreover,the solution does not require the elites to observe the PM’s actionsbefore making a move; it is enough to assume that they are aware ofthe PM’s conjectures and, thus, the model assumes that the actionsare taken simultaneously despite the fact that decisions are madesequentially.

It is assumed that the PM calculate the threshold probabil-ity (p) of elites abusing civil and political rights, which makesthe PM indifferent between selecting ‘comply’ or ‘mobilize.’ Then,this probability is compared with their subjective probability (q)inferred from historical experience. Given the fact that PM arerational and prefer higher expected pay-offs, they select ‘comply’if q > p and conditions (2) are met, but they select ‘mobilize’ whenthese conditions are met and q ≤ p. That is, when PM have a con-jecture that the elites are not likely to be abusive, they mobilizein an attempt to promote a political change but remain passiveif their conjecture is that repression is possible. Likewise, elitesare aware of the values (q, p) and whether PM comply or mobi-lize and, therefore, it is easy to show that rational elites validatePM’s conjectures.

The probability q is based on the experience and interpretationof the PM on how elites and their institutions have historically oper-ated in the prevailing regime. It can be derived, for instance, fromindicators of the degree of corruption, the rule of law, or specificactions taken by elites in the past, which are transmitted throughsocial networks. Accordingly, when q tends to be zero, the gen-eralized belief is that the probability of repression is low. In thestage game, the belief of repression is assumed exogenously givenand, thus, a more sophisticated model would have to deal with thisissue. Nonetheless, if this sticky belief is modified only when thereare drastic changes in the institutional environment and there is apositive feedback between the actual performance of institutionsand the belief, then this assumption of exogeneity is neutral to theresults.

In the formulation of classical game theory, the status quo andthe progressive social orders are the only two possible equilibri-ums given conditions (2). However, with a solution of sequentialheuristics, the model can identify which of these equilibriums effec-tively prevails once the values (q, p) are defined with a probabilityfunction given by the following expression:

p = Bsx − H

2Bsx − H − L(1 − �)(3)

with 0 < p ≤ 1 since x, (1 − �) < 1 and conditions (2) hold.The probability p, obtained when the mean value pay-offs of

the PM’s actions are identical, is a function of society’s culture (x).

p(x) ε [q,1] both types of actors accept a political change and decide

20 This is not a problem of asymmetric information where only one player knowsthe true nature of the other. Here, elites know the different parameters in the struc-ture of the game but are also aware of PM’s beliefs and, hence, know with certaintywhich strategy the PM will follow; that is, beliefs are not rational as in classical gametheory.

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84 G. Castaneda / The Journal of S

o establish a progressive order. Therefore, when the number ofembers of civil society who actively promote an institutional

genda (x) increases the breakdown benefits of civil society areigher and, thus, the threshold probability (p) needs to be higher

or the PM to continue being indifferent between ‘comply’ or ‘mobi-ize’. In consequence, the status quo is destabilized when the valuef p surpasses q because civil society has higher incentives to mobi-ize given that the subjective probability of repression (q) remainsetermined by historical factors.

.3. Political tension and strategic decisions within the elite

For elites to act concertedly it is necessary to maintain a balancef power among different factions, as suggested by structural the-ries of political change. This situation is represented in the modelssuming that the difference in the power base of the ‘L’ and ‘C’actions is kept under certain limits, as indicated in the followingxpression:

RL + �Lx] − [RC + �C(1 − x)] ≤ S ⇔ x ≤ S + �C[RL − RC ]�(L + C)

= xS (4)

here S is the maximum difference in power bases for maintainingpeaceful environment.

This expression assumes that the power base of the more pro-uctive sector (L) can never be smaller and, hence, the upper limit

n the participative working force is the only relevant bound in theodel. For an x below this threshold of tension (xS), elites formcompact group and the selection of one of the two Nash equi-

ibriums is produced with the heuristic decisions characterized byxpression (3). However, when the number of participative individ-als is relatively large the power base of the ‘L’ faction is above thehreshold level, and the economic discrepancy with the ‘C’ factionreates a tense political environment. The animosity between thewo factions becomes fertile land for power struggle and, thus, eachaction decides strategically if fighting to gain power is a profitablendertaking.

Each faction is aware that the power struggle can be costlyhen analyzing whether or not to fight. In the model, a costly dis-ute diminishes the benefits of the ruling elites in the status quoo the point where elites’ breakdown benefits are high enough toncourage the unilateral destabilization of the social order. Withweakened elite, a participative civil society has the incentive toobilize and negotiate a progressive institutional regime where

ivil and political rights prevail and the economy becomes moreroductive (H > L). In the new social order the victorious group isncouraged to promote alliances with civil society because the newegime protects them from opposing elites that keep a belligerentttitude.

Expressions (5) and (6), described below, define the level of thearticipative orientation that destabilize the status quo, that is, thehreshold level where this social order cannot be sustained as aash equilibrium. In the former expression, it is assumed that the

L’ faction is victorious in the fight for power and becomes the rulinglite, while in the latter expression the ‘C’ faction is the victoriousroup. Recall that the victorious faction unilaterally absorbs theroductive component of the defeated faction, yet sustaining power

s also costly given the reduction in income coming from elites’on-productive assets.

LRL + �x(L − C) + �C < Be(1 − x) ⇔ x <Be − �C − ˛LRL

�(L − C) + Be= xLN (5)

CRC + �x(L − C) + �C < Be(1 − x) ⇔ x <Be − �C − ˛CRC

�(L − C) + Be= xCN (6)

Looking at these expressions it is clear that, as long asCRC ≤ ˛LRL, there is only one Nash equilibrium (progressive socialrder) when conditions in (2) hold, x < xLN ≤ xCN and the threshold

conomics 40 (2011) 178–191

of tension has been crossed. The next step in the analysis is to spec-ify the conditions that make the two factions willing to fight forpower, either in a setting where elites’ breakdown benefits are notvery large and two Nash equilibriums remain or in a setting wherethese benefits are large and the status quo is destabilized.

Assume that there is political tension (x > xS) and that the pay-offstructure generates two Nash equilibriums independently of whois the victorious faction (x > xCN). The incentives for ‘L’ and ‘C’ fac-tions to prefer fighting rather than maintain the coalition undera situation of political stress are given by expressions (7) and (8),respectively. Notice that ex-ante, both factions are aware that thelevel of participation is high enough to maintain two Nash equilib-riums but also low enough to select the status quo through heuristicdecisions. Consequently, in this social order benefits are expressedin terms of expected value in case the corresponding faction decidesto fight and does not know in advance who the victorious group willbe. In contrast, if the faction decides to keep the coalition alive, thepolitical tension exerts a toll since the income derived from thenon-productive asset diminishes.

�(˛LRL + �x[L − C] + �C) + (1 − �)(˛LRL) ≥ ωLRL + �Lx

⇔ x ≤ �C� + (˛L − ωL)RL

�[(1 − �)L + �C]= xL (7)

�(˛CRC ) + (1 − �)(˛CRC + �x[L − C] + �C) ≥ ωCRC + �C(1 − x)

⇔ x ≥ �C� − (˛C − ωC )RC

�[(1 − �)L + �C]= xC (8)

where � is the probability of the ‘L’ faction winning the power strug-gle and 0 < ωi < 1 is the toll taken on elites’ income flow due to thepresence of a cold war.

Given that the ‘L’ faction is willing to fight when x ≤ xL and the ‘C’faction is willing to fight when x ≥ xC, and that the policing costs of adeclared conflict are lower than the costs of a cold war – i.e. ˛i > ωi,it is easy to show that xC < xL and, thus, there is always a fight for anyvalue of participation as long as there is political tension. Therefore,the position of x only determines whether there is political tensionand, in the case of stress, which is the faction that declares theconflict.

The previous expressions for a unilateral declaration of conflictwere formulated assuming that one faction prefers to fight if theother acts likewise. However, this participation constraint is nottautological if showing a submissive attitude reduces the belliger-ence costs of being defeated. The left hand side of expressions (9)and (10) shows the pay-offs obtained from participating in a fight bythe ‘L’ and ‘C’ factions with no evident winner. In contrast, the righthand side presents the benefits obtained when the correspond-ing faction self-declares defeat and loses rent from the productivesector but avoids belligerence costs. It is easy to show that theseparticipation constraints are validated for any value of x when thecosts of dispute are relatively low, as is assumed here.

˛LRL + [�x(L − C) + �C]� ≥ RL, which holds for all x > 0 and

˛L ≥ 1 − �C�

RL(9)

˛CRC + [�x(L − C) + �C](1 − �) ≥ RC, which holds for all x > 0

and ˛C ≥ 1 − �C(1 − �)RC

(10)

Now assume that there is political tension (x > xS) and that theprogressive social order is the only Nash equilibrium when elitesare fractured (x < xLN). Under these circumstances, the incentivesfor each faction to prefer fighting are described by expressions

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G. Castaneda / The Journal of S

11) and (12). As the status quo is destabilized in this settingue to the relatively large breakdown benefits, the ruling eliteswhoever becomes victorious) are aware that fostering progres-ive institutions eliminates income flows derived from extractionut, simultaneously, civil and political rights protects them from aelligerent opposition. Notice that benefits in the left hand side ofhese inequalities are obtained with certainty since being a victo-ious or defeated faction does not influence the income generatednder a social order where rights are protected.21 Moreover, thearticipation constraints hold tautologically (Ri ≥ Ri) because thexistence of the progressive order, which emerged with the frac-ure of the elites, reduces dispute costs to a minimum due to theresence of counterweights.

L ≥ ωLRL + �Lx ⇔ x ≤ (1 − ωL)RL

�L= xLP (11)

C ≥ ωCRC + �C(1 − x) ⇔ x ≥ �C − (1 − ωC )RC

�C= xCP (12)

When xCP < xLP is assumed, a conflict starts once society is underolitical tension since for all values of x one of the factions, or both,re prone to declare a fight. This inequality is considered here fornalytical simplicity since assuming a reversed inequality wouldot add any insight to the results presented in Section 5.22

.4. The evolution of a participatory orientation

Although the set of participative members is homogeneous, civilociety is also formed with individuals of the conformist type. Theomposition of the cultural traits in society is related to social expe-iences and, in particular, to the relative pay-offs that each varianteceived in previous periods. Cultural change is not only the productf knowledge and cognitive factors, but also an outcome of experi-ntial factors. Therefore, culture can be seen as a reversible variable,s suggested in Inglehart and Welzel (2005).

Due to information rigidities, it is assumed that demonstrationffects move slowly. Consequently, only a fraction of the pop-lation is capable of modifying its orientation per period evenhough a specific behavior can exhibit a relatively large pay-off.he model described here for the evolution of cultural variantsses the framework of dynamic replication developed in evolution-ry game theory. Likewise, the pay-offs of conformists (˘CM) andarticipative members (˘PM) do vary in terms of the probabilityombination (p, q) and, thus, in terms of the prevailing social orderstatus quo, progressive order). Therefore, the pay-offs of the dif-erent members of the civil society (PM and CM) are given by theollowing expressions:

PMC = L(1 − �) − �(1 − x), when q > p and thes election is

(‘abuse’ and ‘comply’) (13)

˘PMM = H − �(1 − x), when q ≤ p and the selection is

(‘respect’ and ‘mobilize’) (14)

CMC = C(1 − �) − �x, when q > p (15)

21 It is feasible that the status quo prevails when elites are not fragmented whenonditions in (2) hold and, simultaneously, there is only one Nash equilibrium whenhere is a fracture for x < xLN.22 A buffer of peace exists when xLP < x < xCP, where the status quo prevails withhe support of a worn down but united elite if ωCRC + ωLRL > Be is also assumed.onsequently, if xS < x < xLP the ‘L’ faction can declare a fight which, in turn, weakenshe ruling elites and a progressive social order is established; however, if x increaseshrough time this situation implies that society enters in the buffer of peace wherelites act concertedly and reestablish an extractive order through a counter-reform.

conomics 40 (2011) 178–191 185

˘CMM = C − �x, when q ≤ p (16)

As previously mentioned, in the social learning process only alimited percentage (�) of members of the civil society has the abil-ity to modify the cultural orientation in each period, and out ofthis number, a proportion x (1 − x) of them interact with some-one who can offer the necessary information to infer which arethe differential pay-offs between cultural variants (Bowles, 2004).That is, information is transmitted when CM and PM are ran-domly matched. Then, the larger the absolute difference of benefits(˘PM − ˘CM), the more likely that the CM’s orientation will changethrough time. These three factors combined originate an evolution-ary dynamic described with the following equation:

dx

dt= �x(1 − x)[˘PM − ˘CM]

where ˘PM − ˘C ={

(L − C)(1 − �) − � + 2�x when q > p (status quo)H − C − � + 2�x when q ≤ p (progressive regime)

(17)

From this replication equation, it is clear that there are threeequilibriums for the cultural orientation with two of them produc-ing a monomorphism x = 0, x = 1 and another producing a culturallyheterogeneous population (0 < x < 1 such that ˘PM = ˘C). As thisequation is a step function, the differential pay-offs described in(17) vary depending on the type of social order characterizing soci-ety. The slopes of these lines are identical and the intercept underthe status quo is lower than that under the progressive order forH > L.23 Notice also that the differential pay-offs can be positive ornegative and the number of participative members can increase ordecrease with the passing of time. Once the relative size of the cul-tural variant is specified for each period, the individuals with theparticipative orientation decide to ‘comply’ or ‘mobilize’ dependingon their conjectures.

4. The dynamics of collective action and political change

The model presents a set of positive parameters (BS, Be, H, L,� , C, q, �) and the initial condition of the cultural orientation thatcannot be explained within the evolutionary system. Some of theseparameters are considered exogenous as a simplifying assumption(e.g., the level of productivity associated with H and L or the con-jecture on institutional quality), while others can be interpreted interms of historical features. Yet, they can also be modified swiftlyby external factors (e.g., foreign political pressures affecting BS, Be).

The following analysis will focus on the initial condition as thehistorical legacy since it depends exclusively on remote historicalepisodes or critical junctures that have produced the foundationfor the value orientation of society. Moreover, with the aim of clar-ifying the dynamics of the system and how civil society solves itscollective action problem, this section assumes that elites operateas a compact group by ruling out political tension in the relevantrange of x (i.e., xS > xT, where p(xT) = q). Therefore, by means of thisevolutionary framework, Fig. 2 presents a simple scenario wherethe historical legacy does not matter for the long-term behavior ofsociety.

Starting with a historical legacy in x0 that specifies the initialnumber of PM in the civil society, Fig. 2 shows how this culturalorientation spreads steadily, enabling society to cross a culturalthreshold (xT) where actors modify their decisions and foster aprofound political change. In the lower quadrant, it is observed

that the expansion of x affects the probability p, which increasesslowly while moving from the range [p(x) < q], where heuristic deci-sions are such that elites and PM favor the status quo, to the range

23 In this formulation, the fragmentation costs (last term of the differential pay-offs in (17)) produce upward sloping lines and the interior equilibrium cannot bestable. With a nonlinear description, this lack of stability can be easily modified.

186 G. Castaneda / The Journal of Socio-Economics 40 (2011) 178–191

CPM −ΠΠ Progressive order

Status quo

H- C - γ

(L-C)(1-τ)-γ

0 x0 xT 1 x

q

Progressive order Status quo

progr

[w

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4

gcetlmppp

hhcoft

stiFiimdse

p(x)

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p(x) ≥ q], where both types of actors are supportive of a new orderith non-extractive institutions.

In the upper quadrant, the propagation of participative individ-als takes place because, in either social order, this behavior offers aelatively larger pay-off. This dynamic is graphically depicted withhe arrows along the lines. Likewise, this quadrant illustrates howhe new order is established abruptly once the collective actionf civil society is backed by a certain percentage of participativeembers. Notice that the historical legacy (i.e., the position of x on

he horizontal axis) only influences the timing for the adoption ofprogressive order since all initial conditions lead society to theew order and to the corner equilibrium where all members of theivil society are participative.24

.1. Institutional inertia

The empirical evidence shows that, instead of exhibiting conver-ence, societies around the world can be classified in developmentlubs. The existence of poverty traps and the disparity in theconomic and political performance can be explained through insti-utional inertias. This type of inertia is present when there areock-in effects that hinder any attempt at institutional reform. In the

odel presented here, there is a cultural lock-in in the sense thatrogressive institutions cannot be adopted due to collective actionroblems caused by unmotivated individuals who are unwilling toarticipate in a bargaining process to promote their own agenda.

A scenario of institutional inertia is presented in Fig. 3, whereistorical legacy is critical to determine if a society belongs to aigh-income or low-income club. For values of x ≥ xT, a society

0an maintain its good historical performance and the participativerientation spreads throughout the population. By way of contrast,or values of x1 < xT, an exploitative regime prevails and participa-ory values do not ‘pay’ and, thus, they are not ‘contagious’. This

24 The parameter q that represents the conjecture of institutional quality is con-idered exogenous in the model, despite the fact that a swift institutional reformakes place. However, this simplification does not change the main results whenndividuals adjust the conjecture in terms of previous experiences. For instance, inig. 2, when the threshold xT is crossed and individuals start to observe a steadymprovement in the behavior of law-abiding elites, this shared experience mightnduce with time a reduction in the value of q (i.e., a better institutional perfor-

ance). Diagrammatically, this reduced value implies that the cultural thresholdecreases (not shown in the figure) and, thus, the basin of attraction of the progres-ive regime increases. This effect does not alter the heuristic behavior of PM andlites and, accordingly, society keeps moving along the high-income path.

essive order ((L − C)(1 − �) > �).

induces the pulverization of society and a lock-in where civil soci-ety does not have the capacity to act collectively to break up thestatus quo. Consequently, as long as there are no exogenous factorsthat change the value of the parameters, this setting creates institu-tional inertia and a wide disparity in the performance of societies,each of them being firmly attached to their historical legacy.

4.2. Reversion of fortunes

The literature on economic development shows that some coun-tries have been able to reverse their fortunes and move from thelow- to the high-performance club (Acemoglu et al., 2002). The evo-lutionary model can also explain this type of scenario for a specifichistorical legacy or underlying factor of coevolution (UFC). Fig. 4presents three different UFCs (x0, x1 and x2) with very distinctivepaths. While for x1 the participation of individuals declines steadilyand the status quo is sturdy, for x0 and x2, the participative attitudeincreases until it reaches an equilibrium in which a homogeneouspopulation prevails (all are PM).

When the legacy is represented by x0, there is a process of rever-sion of fortunes since the propagation of the cultural variant allowssociety to jump at xT from an environment of extractive institutionsand low income to an environment of high productivity and non-extractive institutions. In brief, this setting not only characterizesthe existence of development clubs but also describes the possi-bility of a fortune reversion for a certain range of cultural values.Historical legacy matters, but this situation does not imply that theeconomic backwardness of a country cannot be reversed.

4.3. Modernization theory and co-evolution

Although the model is not designed to analyze, in full detail,the coevolution between economic and cultural factors, as key eco-nomic variables are assumed to be fixed parameters, the graphicalanalysis of Eqs. (3) and (17) is a good tool to show how an exogenousimprovement in economic conditions can incite a cultural transfor-mation and start a round of institutional improvements. Therefore,the model is compatible with the coevolutionary version of mod-ernization theory, which suggests that democracy can be achieved

when the country has reached a certain level of socioeconomicdevelopment. Thus far, economic variables, such as the productiv-ity in the two institutional regimes (H and L), have been consideredfixed, yet the model can specify a causality chain that begins withan exogenous change in some of these variables.

G. Castaneda / The Journal of Socio-Economics 40 (2011) 178–191 187

CPM −ΠΠ

Progressive order

Status quo

0

x1 xT x0 x 1

H- C - γ

q

(L-C)(1-τ)-γ

p(x)

Fig. 3. Cultural lock-ins and institutional inertia (x1 < xT < x0, dx/dt (progressive regime) > 0 at xT and dx/dt (status quo) < 0 at xT).

CPM Π−Π Progressive order

Status quo

H - C - γ

0 x 1 x0 xT x 2 1 x

(L-C)(1-τ)-γ

q

p(x)

Fig. 4. Reversion of fortunes (x0 < xT , (L − C)(1 − �) < � and dx/dt (status quo) > 0 at x0).

CPM Π−Π Progressive regime

Status quo (2)

ΔL> 0 Status quo (1)

H - C - γ

0 x1 x0 xT 1 x

(L-C)(1-τ)-γ

q

p(x)

Fig. 5. Modernization theory (x1 < x0 < xT, dx/dt (status

quo 1) < 0 at x0 and dx/dt (status quo 2) > 0 at x1).

188 G. Castaneda / The Journal of Socio-Economics 40 (2011) 178–191

CPM Π−Π political tension Progressive order

2 NE for L & C

Status quo

H- C - γ

collective action

(L-C)(1-τ)-γ

0 x0 xLN xCN xS xT x

elites’ turmoil

q

p(x)

al uph

ttpdct(sfpiuipa

5

ifttuiqeaoioe

5

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Assume that the historical legacy is at x0 in Fig. 5 and, withhis historical background, the society presents extractive insti-utions. The status quo can be described as a social trap since theoor participation of civil society and its continuous alienation fromecision-making do not produce endogenously the capacity forollective action. However, if, for some external reason, the produc-ivity of the economy increases (�L > 0, without violating condition2)) so that the intercept of the differential pay-offs in the status quohifts upwardly, society can start a positive cycle of cultural trans-ormation and development. At x1, an increase in productivity takeslace, which stops further pulverization of civil society and renders

t unprofitable to continue to be a conformist. The participatory val-es start to spread, and when the cultural threshold is crossed, there

s a drastic change in institutions. The exogenous improvement inroductivity creates the cultural conditions required for collectivection and democracy.

. Political change, turmoil and elites’ fragmentation

This section examines the possibility that elites can be fracturedf there are large economic discrepancies between the ‘L’ and ‘C’actions and if the environment provides the required incentiveso struggle for power. In particular, three dynamic scenarios of his-orical relevance are presented: (i) political tensions that producepheavals among elites’ faction, yet the continuous shifts in the

dentity of the ruling elites are not enough to destabilize the statusuo; (ii) a progressive social order established as a consequence oflites’ fragmentation and the interest of the ruling elites to set uplliances with civil society to protect their rights from a belligerentpposition; and (iii) a temporary implementation of progressivenstitutions that are toppled by a series of counter-reforms led bypposing elites until the collective action of civil society is strongnough to sustain the progressive social order.

.1. Political upheavals among elites without reforms

Fig. 6 describes scenario (i) where for values of x < xS there is noolitical tension between factions and conjectures are such that thetatus quo prevails. When x crosses the threshold of tension, there

re still two Nash equilibriums (NE) given that x > xCN; nonetheless,he extractive social order remains despite the continuous strug-le for power. For x such that xS < x < xT, society exhibits a period ofolitical turmoil where ruling elites might change identity depend-

ng on which faction is victorious, yet their breakdown benefits are

eavals (x0 < xLN < xCN < xS < xT , (L − C)(1 − �) > �).

low enough that there are no incentives to destabilize the statusquo. Finally, when the cultural threshold is crossed, the strengthof civil society is relatively high and thus elites prefer to accept theinstitutional reforms that nurture a progressive social order. Noticein the upper quadrant that the differential benefits of the two vari-ants in civil society is always positive and a productive orientationtends to be replicated as time passes by, even in a historical contextwhere institutions are extractive.

5.2. Elites’ fragmentation and institutional reforms

Fig. 7 describes scenario (ii) where the status quo prevails for areduced number of participative members of civil society; however,once the threshold of tension is crossed, elites’ fracture appears andwith this change a new social order is established. For values of xsuch that xS < x < xLN, elites are divided and the structure of pay-offsgenerates only one Nash equilibrium. For values of x within thisrange, both factions have incentives to destabilize the status quowhen victorious and an agreement is reached with the participativemembers of civil society to foster civil and political rights. Finally,for x such that xLN < x < xCN, there is only a Nash equilibrium whenthe ‘C’ faction wins the struggle and two in case of a victory ofthe ‘L’ faction; nonetheless, the latter also prefers to support theprogressive order given the heuristic decisions of the stage game(x > xT).

5.3. Reforms and counter-reforms

Fig. 8 describes scenario (iii) where a weak civil society anda compact elite are conducive to the preservation of the statusquo for an initial x0 < xS. However, as x increases, the politicaltension produces a fissure within the elites such that the pro-gressive order is the only Nash equilibrium for any of the twofactions. Unfortunately, as the number of productive individualskeeps increasing and x moves in the range [xLN, xCN], there is a pro-cess of counter-reforms encouraged by the ‘L’ faction where societymoves intermittently between progressive and extractive institu-tions. This development occurs because the progressive order is theonly Nash equilibrium for the ‘C’ faction while there are two for the

‘L’ faction but the status quo remains the selected regime accordingto the heuristic decisions (x < xT). Finally, after a period where bothfactions preserve the status quo despite their differences, society isleft with a renovated progressive wave where the strength of civilsociety becomes the stabilizing force of the new order.

G. Castaneda / The Journal of Socio-Economics 40 (2011) 178–191 189

political tension

CPM Π−Π 1 NE for L & C 1 NE for C & 2 NE Progressive order

2 for L

Status quo

H- C - γ

(L-C)(1-τ)-γ 0 x0 xS xT xLN xCN x

q Factions select progressive order when 2 NE

p(x)

gressiv

6

tbtaHcoitpf(fwe

dpte

Fig. 7. Elites’ fragmentation as a conduit for pro

. Political change through contention

In the previous analyses, a society can move from the sta-us quo to a progressive order without any open confrontationetween elites and members of civil society. That is, the par-icipative members of civil society and the elites can reach angreement to reform institutions through contained contention.owever, the historical evidence indicates that a bargaining pro-ess characterized by peaceful means and formal political channelsf institutional engineering, such as debates in parliament and vot-ng, are unlikely when an authoritarian regime prevails. Instead,here are many episodes where civil society mobilized, organizedrotests and boycotts, and where the government used militaryorce and violated civil and political rights flagrantly in retaliationTilly, 2004). Very often, revolutions, mass rebellions, and otherorms of transgressive contention took place before the claimantsere successful in reforming institutions and democratizing soci-

ty.

The evolutionary model developed here is also capable of

escribing this empirically relevant scenario once the conditionsresented in (2) are discarded. These are sufficient conditions forhe status quo and the progressive regime to be the only Nashquilibriums and, accordingly, the historical legacy and the pro-

politic

CPM Π−Π 1 NE for L & C 1 NE

2 for

H- C -γ

(L-C)(1-τ)-γ 0 x0 xS xLN

q

p(x)

Fig. 8. From reform to counter-reform (x0

e order (x0 < xS < xT < xLN < xCN, (L − C)(1 − �) > �).

cess of cultural evolution make possible the selection of one ofthem. With other conditions, the propagation of participatory val-ues can produce a political change that ranges from the status quoto the contention regime to the progressive order. Societies canexperience a period of transgressive contention for a range of cul-tural traits that encourage combativeness on the part of PM andrepression on the part of elites.

6.1. The construction of a contention path

To focus on a scenario where confrontation is produced exclu-sively between elites and civil society, it is assumed that thedifferent elites’ factions are equally powerful and this collectivityacts concertedly (i.e., xS > xT). Under a setting of non-belligerenceamong elites, a set of sufficient conditions for a contention-cum-reform path can be found using a constructive approach. The path,where PM’s conjectures are such that rights tend to be violated(p < q), can be characterized as follows: stage (i): [actions: ‘abuse’

and ‘comply’]; stage (ii): [‘abuse’ and ‘mobilize’]; and stage (iii):[‘respect’ and ‘mobilize’]. Notice that stage (iii) involves a situationwhere expectations are not met since the PM’s conjecture is thatelites will tend to abuse civil rights. However, elites prefer to respecta new order with non-extractive institutions. In this manner, the

al tension

for C & 2 NE Progressive order

L

Status quo

collective action

xCN xT x

‘L’ faction generates counter-reforms

< xS < xLN < xCN < xT , (L − C)(1 − �) > �).

190 G. Castaneda / The Journal of Socio-Economics 40 (2011) 178–191

CPM Π−Π contention regime Progressive order

Status quo

H- C - γ

(L-c)(1-τ)-γ 0 x

x’ x0 x’’ x’’’ 1 xT

stage (i) stage (ii) stage (iii)

q Probability function

1

q)

m ((L −

rionis

spqb

x

x

jrfge

x

bapova

tlp

ttw

p(x) *Note: conjectures: (p <

Fig. 9. Contention and institutional refor

espectful experience makes PM reduce the value of q with the pass-ng of time. With a continuous increase in the number of membersf civil society with participatory values (x), the model can endoge-ously explain this particular sequence of political change. Hence,

t is necessary to specify the ranges of x where each of these threetages holds.

By means of the pay-off matrix in Fig. 1, it is easy to show thattage (i) will prevail when the sequential solution concept is inlace. Thus, for all x ε (x′, x′′) society will be located in the statusuo. The lower and upper bound of this open interval are set forthy the following expressions:

′ = Be − R − �C

�(L − C) + Be(18)

′′ = L(1 − �) + H

2Bs(19)

For stage (ii), the sequential solution requires that, with a con-ecture of abusive elites, the PM prefer to ‘mobilize’ and the elitesespond abusively in concordance with those expectations. Thus,or all x ε [x′′,x′′′] society will transit through a period of trans-ressive contention. The upper boundary of the closed interval isxpressed as follows:25

′′′ = Be − R

Be(20)

In stage (iii), there is still a conjecture of abusive elites andecause of this conjecture, PM react by mobilizing. However, whenpplying the solution concept and knowing the PM’s action, elitesrefer to establish new institutions. This stage occurs for valuesf x > x′′ and x > x′′′. Therefore, this range of unmet expectations isalid for all x ε (x′′′,1), where the level of the cultural orientationssociated with the threshold probability at q is such that x > 1.

T

Accordingly, if the sequence of inequalities (21) are met, thenhe contention-cum-reform path is observed when the historicalegacy is x0 ε (x′,x′′), conjectures are p(x) < q for x ε [0,1], and xresents a continuous expansion because being a conformist never

25 It is important to clarify that, in this model, individuals go through a period ofransgressive contention, not because they think they will be victorious in settinghe future institutional agenda, but because their mobilization itself provides themith direct rewards.

C)(1 − �) > � , x′ < x0 < x′′ < x′′′ < 1 < xT < xS).

pays. This is true even during the period of transgressive contention,which will be explained below.

Be − R − �C

�(L − C) + Be<

L(1 − �) + H

2Bs<

Be − R

Be< 1 <

q[L(1 − �) + H] − H

Bs(2q − 1)(21)

6.2. Graphical description

The outcome of the model now includes a period of transgres-sive contention; thus, the differential pay-offs in the replicationequation are modified, as indicated in expression (22). Under thesenew conditions, the contention regime can also be a sequentialequilibrium. Hence, the pay-off for the PM in this regime is givenby ˘PM

CR = Bsx − �(1 − x), according to the southeast corner of thepay-off matrix. Notice that the line of differential pay-offs in thecase of contention always has a negative intercept and a slope thatis higher than the one observed in the two social orders. In thisscenario, the replication equation with a step function switchesdifferential pay-offs not in terms of conjectures, as before, but interms of stages.

dx

dt= �x(1 − x)[˘PM − ˘C ]

where ˘PM − ˘C =

{(L − C)(1 − �) − � + 2�x when x is in stage (i)−[� + C(1 − �)] + (Bs + 2�)x when x is in stage (ii)H − C − � + 2�x when x is in stage (iii)

(22)

Fig. 9 illustrates the contention-cum-reform path by drawingthe differential pay-offs of the replication Eq. (22) in the upperquadrant and the probability function (3) in the lower quadrant forp(x) < q.26 To observe a continuous increase in x, starting with the

historical legacy level (x0), the differential pay-offs for the statusquo and the progressive order are assumed positive for all possi-ble values of the cultural trait, while the differential pay-offs forthe contention regime is assumed to be positive in the relevant

26 Because condition (2) was removed, it is necessary to recheck the convexity ofthe threshold function (3) and whether 0 and 1 always bound the convexity. It iseasy to show that, in fact, this is a probability function for all values of x in the unitaryinterval and that the convexity of the curve presents an inflection point at x′′ .

ocio-E

rp

7

tcspdmatcttcf

cppfcmon(mcv

R

A

abvocd

of Europe”. IGIER, Bocconi University, May.

G. Castaneda / The Journal of S

ange. It is also assumed that xT > 1 so that in equilibrium (x = 1) thearticipatory values are common to all members of society.27

. Conclusions

Each society’s history is particular. Some societies are ableo leave behind an authoritarian regime due to an internal pro-ess of behavioral changes in civil society and some societies aretuck in a poverty trap while others can escape because there is aower struggle among elites’ factions. Moreover, in many cases,emocratization and institutional reforms are achieved throughass rebellions and after episodes of violent repression, yet there

re also some cases where progressive institutions are designedhrough contained contention. The model developed in this paperan describe all these particular histories through a combination ofwo mechanisms: the propagation of certain cultural orientationshat produces a collective action by civil society and endogenoushanges to economic and political incentives that propitiate theragmentation of elites’ factions.

The empirical evidence shows a strong correlation betweenontemporary cultural values and economic/political indicators oferformance and an equally significant correlation between theerformance of contemporary institutions and remote historicalactors. Although this evidence is not conclusive, it suggests thatulture and history matter in explaining socioeconomic develop-ent. The cultural theory developed in this paper formalizes some

f the arguments of the ‘human development sequence’ and ratio-alizes some of the empirical findings of Inglehart and Welzel2005), Welzel (2006) and Tabellini (2006). Nevertheless, econo-

etric studies remain to be developed that can directly test theoevolution among endogenous variables and identify the relevantariables behind a country’s historical legacy.

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