Defining Institutional Quality - A Game Theoretic Approach

Abstract: Abstract This paper discusses definitions of institutions and proposes three different game theoretic definitions of institutional quality. The setting used is a repeated game between an investor and a country. Three definitions of institutional quality are presented: institutional quality as utility maximization, as credible commitment, and as length of foresight. The merits and drawbacks of the different definitions are discussed, as well as their complementarity and compatibility. The relationship between the technical definitions, and an example of an actual empirical measure of institutional quality are also touched upon.