A Three-Person Game of Institutional Resilience versus Transition: A Model and Its Application to China-Japan Comparative History

Abstract

Combining a model of three-person game and a comparative narrative, this article explores the endogenous nature of institutional resilience versus transition. The three-person game is played by a ruler, a challenger, and an opportunist who chooses a strategic position between the former two depending on the game situation. Under wide classes of game forms, the model is reduced to a super-modular game, in which dual Nash equilibria exist: one increases the likelihood of a transition to a new state and the other supports the status quo or increase the likelihood of failure by the challenger. Thus, in this model the timing of an institutional transition could be different for the same structural characteristics. Choice of an equilibrium may be affected by a change in players' common conjectures about others' strategic choices brought in by a salient public proposition or by a bold strategy of a political entrepreneur. In its emphasis on multiple equilibria, the model may be contrasted with both the two-person game approach to the political economy of development and to the original global game approach to regime changes. Finally, the article applies the analytical results to revisit comparative economic histories and institutional changes from the pre-modern political-economic states in China and Japan.

Keywords: 3-person game, super-modular game, endogenous institutional change, state capacity, regime change, multiple equilibria, strategic complementarities, Chinese economic history, Japanese economic history

JEL Classification: B52, C70, C72, N90, N95