Social Organization: Essays on the Need of Institutions and their Design

This thesis offers five self-contained essays on the need of institutions and their design. Each essay constitutes a chapter, the first of which offers a mathematical model showing the importance of external institutions for the existence of a society. More specifically, it is an extension of a model dealing with strategic situations in which players share an asset. In the original model, both players have means to eliminate the opponent with some probability and, in case of successfully eliminating him, gain the full share of the asset which was previously shared. Only after introducing damage in case of attacking but failing to eliminate the opponent and discounting of future periods is it rational for the players to abstain from attacking. The extension of the model brought forward in the present analysis limits the possibility to gain the opponents share of the asset. It is shown that the introduction of imperfect abilities to gain the opponent’s share increases the probability of remaining peaceful. This result is interpreted as showing the need for external institutions. The second chapter analyzes a specific concept of morality which may be regarded as playing the role of an institution in the aforementioned sense. To be more precise, one of the building blocks of Adam Smith’s moral philosophy is analyzed, namely the impartial spectator. Smith apparently introduces the impartial spectator as personification of a value system. This hypothetical person is “the man within the breast”, a synonym of our conscience if you wish. He constantly observes our conduct and makes us feel bad if we fail to act according to his standards. Simple as it may seem, Smith’s impartial spectator is interpreted in rather different ways. For instance, some scholars argue that he is an epitome of a universal value system. In other words, all humans share the same impartial spectator. Others regard him as purely individual, implying that each person has “his own” impartial spectator or value system. Still others regard the impartial spectator as personification of the values of a specific society. The present analysis tries to disentangle these different meanings and find out where their justification may be found. The third chapter of the analysis takes up the idea that, within a society, its members observe other members. In addition to the mere observing, information gained by observing others is also communicated within the society. Hence, a social group may provide a frame for signaling and exchanging information about and via others. As an increasing amount of literature on signaling implies, the quality of signals may also contribute to the economic success of the respective group. In the present analysis it is shown that the quality of signals, and hence the economic success of the group, may depend on the size of the group. However, there is a trade-off. On the one hand, a smaller group may provide a higher signal value. On the other hand, a larger group may provide more information and trading opportunities. It seems that there should be an economically optimal group size. As evidence for this hypothesis it is referred to the economic success of religious groups in the past. In the philosophy of Adam Smith legal institutions evolve due to the imperfections of the natural institutions, as was briefly mentioned above. Chapters four and five of this thesis discuss this argument. Moral attitudes and social norms give rise to punishment. In other words, the enforcement of values and norms is set through via punishment. However, for Smith punishment is not based on a welfare analysis but the resentment felt by those affected and those watching an unjust (or in another manner improper) action. Put differently, punishment arises out of passions or sentiments. Yet, punishment may also be regarded as a necessary instrument in order to prevent misbehavior in various forms, though it remains based on emotions or passions. But passions are easily distorted and punishment may hence fail to fulfill this preventing role in an adequate manner. At some times, for instance, the wrong people may be punished, at other times punishment may be too harsh. In order to correct for these problems the right to punish is passed on to more impartial, external institutions such as legal institutions. But although legal institutions are “external” to a certain degree, they are not completely independent from the natural institutions. In order to function well, legal institutions have to respect the moral values and social norms of the society they are to regulate. In the two papers which constitute the fourth part of the thesis, it is argued that a jury system may offer a potential for advantages over other forms of legal settlement. This advantage occurs in the form that a jury may include the “social perspective” into the verdict in a better way. However, this advantage faces the disadvantage of unintended social dynamics within the jury, which may distort the verdict. As one of the main factors affecting the advantage or disadvantage, homogeneity of the society and the jury is identified. A homogeneous society may, with higher probability than a heterogeneous society, bring about a homogeneous jury. On the one hand, the positive side, homogeneous juries may communicate well and hence overcome partiality of the individual jurors. Also, a homogeneous jury can rather easily agree upon a verdict. On the other hand, the negative side, homogeneous groups tend to polarize due to group dynamics. Further, the “argument pool” is limited. This implies that there is a greater chance that relevant information is not taken into account as compared to heterogeneous groups.