فصلنامه پژوهشهای اقتصادی ایران (Mar 2024)
Institutional Congruity and Political Economy Equilibrium of Contemporary Iran: A Game Theory Approach
Abstract
The history of modern Iran is marked by numerous movements and revolutions, primarily aimed at achieving a proper balance between the state and society. Despite significant efforts, Iranians have not yet reached the ideal equilibrium. This research aimed to provide a brief overview of modern Iranian history and examine the pathways of progress for both the state and society. Utilizing an institutional analysis framework and the concept of institutional congruity, the study developed a new analytical framework to analyze the state–society interaction in Iran. A game theory approach was then used to examine various scenarios of the state–society interaction. The findings revealed that the depreciation, economy of scale, and instability of preferences are crucial factors in the dynamics between the state and society. However, the rate of time preference emerged as the most decisive factor, leading to three possible equilibriums: democracy, despotic Leviathan, and absent Leviathan.1.IntroductionAccording to Hegel, Iranians were historically the first people to establish a state, with their continuous history beginning with their empire (Hegel, 2004, p. 191). This continuous history narrates the dialectic between the state and society in Iran. The dynamics of this interaction can result in a stable equilibrium, an unstable equilibrium, or a fundamental disequilibrium. Given the unique nature of Iran, is it possible to achieve a balanced relationship where societal demands are met, and the state could provide ideal governance? How can we conceptualize the successive transformations and instability in the state–society interaction in contemporary Iran? Why did the Constitutional Revolution lead to Reza Khan’s dictatorship? Why did the secularization under Pahlavi II lead to the Islamic Revolution? How can we interpret this history of highs, lows, and turbulence? To address these issues, the present study aimed to explain the contemporary interaction between the state and society in Iran by using the institutional congruity framework and game theory. The goal was to present various possible equilibriums for Iran’s contemporary political economy. In other words, the research sought to elucidate the potential balance of the political economy in Iran based on the state–society interaction.2.Materials and MethodsIn the institutional balance between the state and society, a dynamic interplay is unfolding. Building on the model proposed by Acemoglu and Robinson (2023), this study attempted to derive various possible scenarios of the state–society interaction in Iran. Time is represented discretely, with the length of each period denoted as Δ>0. At time t, the variables from the previous period are as follows: where x represents the capacity of society, and s represents the capacity of state. At each point, society and the state are represented by a player. At any time, players simultaneously choose their investments , which determines their current capacity according to the following equations: For both the short-term state and society, various scenarios can be formulated regarding the presence or absence of depreciation and the oscillating nature of their inclinations. Consider the cost function for two players as follows: and 3.Results and DiscussionThe results suggest that beginning with low capacities for both the state and society can lead to a trajectory where a society starting with a weak state might directly evolve into one moving toward either a despotic Leviathan or an absent Leviathan. This dynamic is illustrated in the following phase diagram:Figure 1: First Scenario: The Short-Term Society In this scenario, it is evident that without depreciation, there is significant potential for Iranians to advance within a narrow corridor. However, as depreciation increases, this potential diminishes, eventually leading to a state of collapse (0, 0). Figure 2: Second Scenario: The Short-Term Society with Unstable Preferences The transformations in modern Iranian history show varying dynamics in both society and the state across different periods, reflecting differences in their types and levels of societal participation and efforts to achieve their respective goals. The high dynamics demonstrate that in a short-term scenario-assuming a depreciation rate of 0.1-if society is active (while the state is not), the predominant state tends towards anarchy. In the opposite scenario, the predominant state shifts towards a despotic Leviathan.Figure 3: Third Scenario: The Short-Term State The results of this scenario mirror those of the first scenario, highlighting the significant impact of depreciation on future possibilities. In contrast, the possibilities lean more towards a despotic Leviathan, whereas in the first scenario, the tendencies for a short-term society leaned more towards anarchy. Figure 4: The Short-Term State with Unstable Preferences In this scenario, similar to the second one, it is apparent that the efforts and engagement of both society and the state must be parallel and substantially proportional to each other. If either entity remains passive, the situation tends towards either pure despotism or anarchy.When it comes to time preference rates, it is crucial to consider the long-term, forward-looking perspectives of both the state and society. In the first scenario, the state is short-term and active with . Being active implies significant investment in the state capacity accumulation. In the second scenario, the state remains short-term and active with . These two situations were examined under two conditions: and .Figure 5: The Role of Time Preference in the Long-Run Equilibria of Iran’s Political Economy The above phase diagram effectively illustrates the significance of time preferences and their causal precedence in determining the state of the Leviathan in Iran. Even with depreciation and the short-term nature of both society and the state, achieving a stable equilibrium state (narrow corridor) is feasible when time preferences are appropriately aligned. Otherwise, depending on the short-term nature of either society or the state, the expected outcome will tend towards despotism or pure anarchy.4.ConclusionIn Iran, both society and the state must adopt a long-term rationality based on historical self-awareness to progress harmoniously. The primary challenges faced by Iranian society and the state stem from their short-term outlooks, as reflected in their time preferences. Whether society or the state prioritizes short-term goals, it becomes evident that depreciation significantly limits the possibility to enter the narrow corridor of stability. When both the state and society fail to coordinate efforts— whether in the short-term society or short-term state—it often leads to either pure despotism or anarchy. Despite the depreciation, economies of scale, and instability of preferences, it is the rate of time preferences that ultimately determines whether entry into the narrow corridor is feasible. Furthermore, this rate of time preferences dictates whether the equilibrium state leans towards a despotic Leviathan or an absent one, contingent upon the economies of scale achieved by both the state and society.
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