Endogenous Institutional Stability

Abstract

Members of an organization need to be assigned to positions, e.g., legislators to committees, executives to roles, or workers to teams. This choice over allocations—and more broadly, the assignment procedure design—represents an institutional choice that is agreed upon by the very members being assigned. If a coalition of members can arise endogenously to bring about reform by voting in favor of some alternative allocation over their current allocation, the stability of such an institution is undermined. I explore this notion of institutional stability by bringing together matching theory and social choice. Correlation across agents’ preferences over positions generates envy and results in large coalitions for institutional change. I show that existence of institutional stability under majority rule is robust to moderately correlated preferences, in contrast to plurality rule (i.e., “popular matching”). Given the prevalence of (super-)majority rules, this suggests why we observe institutional stability in practice. JEL Code: D71