Satoshi Fukuda (Bocconi University); William Fuchs (UT Austin and Universidad Carlos III Madri)
Abstract
We propose a simple model of the evolution of institutions, where leaders' actions have a persistent effect by shaping the norms of the institutions they lead. This can lead to different long-run behaviors even for institutions with the same formal rules. The early history of leaders plays a crucial role in determining which outcome prevails. Every period, a leader decides to respect or abuse their position. Respect strengthens the norms; abuse weakens them. Leaders' type and current norms determine the benefit/cost of abusing the position. Norms also determine the replacement probability of leaders. We elucidate democratic backsliding and corporate-board capturing.