Modeling institutional change in transition economies

A particular aspect of path dependence and change is discussed here. To understand institutional change in transition economies, a game theoretic model that combines economic changes with changes in the social values system is proposed, in a mechanism where the two changes are interdependent and influence one another in a repeated game. The speed of change in this dynamic model is the result of two rates, the ‘‘learning rate’’, how fast agents are learning to play the new ‘‘capitalist’’ game and the so-called ‘‘going-over rate’’, the mix in every time period of economic agents playing according to the ‘‘old’’ communist values and those playing according to the ‘‘new’’ capitalist values.