"The theory of equilibrium institutions, as developed by Douglass North, is notorious for having marked the capability of institutions to reinforce themselves and to make their replacement difficult thanks to the effects of incentives embodied in their structure. According to the Northian framework, inefficient institutions may survive as a consequence of actors’ learning by use, their adaptation to institutional regularities, and the costs of their replacement.
"The basic foundation of this argument is that institutional developments are subject to increasing returns, that is, that people obtain positive net benefits from using the existing institutions and the costs of replacing them rise. The original analyses in this approach developed by economists tend to focus on institutions such as property rights, contract guarantees, rule of law, justice and others producing efficient markets for the provision of private goods. The corresponding applications to politics are appropriate to the extent that certain institutions for the provision of public goods can also produce widespread satisfaction among large numbers of citizens, even universal benefits because some public goods can be consumed by all citizens in ways that each of them can hardly anticipate (including, for instance, national defense, security, and environmental protection).
"But the stability of formal institutions may have been overestimated. Public goods are also the subject of political competition because they always involve some redistributive dimension – including taxes, allocation of public expenditures, decisions on location, etc. In fact, all political activity –and electoral politics in particular – involves some degree of competition and the production of winners and losers. In other words, the benefits and costs of many institutional political outcomes are significantly different for different actors. In these contexts, for some actors the temptation to exit from the existing institutions can be neutralized to some extent by the relative benefits of routine, predictability, and previous adaption to the existing institutional rules, but not necessarily by significant gross benefits derived from institutional outcomes. Thus, some aspects of institutional politics may not be subject to increasing returns because, for some actors, learning and adapting to the existing rules can be almost equivalent to accustoming themselves to lose. Then, if the costs of exit are relatively low, promoting institutional change can be a rational strategy.
"More precisely, actors who anticipate that they will become absolute and permanent losers as a consequence of the political game played under the existing institutional rules may prefer institutional change – in spite of its uncertain benefits and its certain costs – to sure defeat. The actors interested in institutional changes are not only the permanent losers in the game. Also risk-averse rulers submitted to new challenges from alternative potential winners may rationally choose to change the institutional rules of the game in order to minimize their likely losses."