Economic Theory Seminar - Ashutosh Dinesh Thakur (NUS)

Title: Stability of Institutional Designs: Theory & Practice

Abstract: In many organizations, members need to be assigned to certain positions, whether these are legislators to committees, executives to roles, or workers to teams. In such settings, the design of the assignment procedure becomes an institutional choice that is influenced and agreed upon by the very members being assigned. Will these agents seek to reform the assignment procedures by voting in favor of some alternative allocation over their current allocation? I explore this question of institutional stability by bringing together matching theory and social choice. I introduce majority stability---i.e., institutional stability under majority rule---and juxtapose it with other voting rules an organization might use to resolve internal conflict. Institutional stability is undermined by correlation across agents' preferences over positions as this generates envy which, in turn, enables a coalition to form endogenously that is decisive in changing the institution. For extremely correlated preferences, I establish a Chaos Theorem wherein there exists a majority-approved agenda from any matching allocation to any other allocation. Nevertheless, I show that institutions are robust to intermediate correlation across preferences under majority rule, in sharp contrast to plurality rule. Given the prevalence of (super-)majority rules in practice, this suggests why we observe institutional stability.

Insights from the theory are illustrated empirically, to explain the political economy behind the endogenous evolution of assignment procedures used to allocate elite Indian civil servants to states throughout history from India’s independence till the present.