Consider this toy model:

An institution, such as a firm, an association or a state, is formed.

It works well in the beginning. It encounters different problems and solves them the best it can.

At some point though a small problem arises that happens to be a suboptimal Nash equilibrium: None of the stakeholders can do better by trying to solve it on their own. Such problems are, almost by definition, unsolvable.

Thus the problem persists. It's an annoyance, but it's not a big deal. The institution is still working well and you definitely don't want to get rid of it just because it's not perfect.

As the time goes on, such problems accumulate. They also tend to have unpleasant consequences: If such a problem makes particular medical treatment unavailable, it incentivizes the patients to bribe the doctors and the doctors to break the law and administer the treatment anyway. Now, in addition to malfunctioning medical system, you have a problem with corruption.

After on time the institution accumulates so many suboptimal Nash equilibria that it barely works at all.

The traditional solution to this problem is internal strife, civil war or revolution. It eventually destroys the institution and, if everything goes well, replaces it with a different one where at least the most blatant problems are fixed.

War or revoulution is not a desirable outcome though: In addition to the human suffering, it also tends to replace the people in power. But the people in power don't like to be replaced and so they will try to prevent it.

One manoevre they can use is to introduce planned institutional death: Every now and then the institution would be dismantled and created anew, without having to resort to a war or revolution.

Here's an example: The credit system tends to be one big suboptimal Nash equilibrium in itself. Compound interest grows the size of the debt like crazy and unless there's a way to limit the harm it'll destroy people and business and eventually the entire economy. Even lenders would be hurt, but none of them has a reason to mitigate the problem. They could, in theory, forgive the debt for the sake of keeping the economy afloat, but that would put them in disadvantage to other lenders.

And so the king or the religious authority decides to have jubilee years. Every fifty years, all debts are forgiven. The institution of money lending dies and is rises anew from the ashes. (David Graeber asserts that the practice was, in fact, not specific to Israel, but common at the time among the ancient societies in the Middle East.)

One can also think of the democratic system of regular elections as a kind of planned institutional death. Every four years, the government, with all the accumulated dysfunction, is thrown out and a new one is instituted. But the government example also makes the problem with planned death obvious. Government is replaced, but the people on non-political positions, various administrators and small-scale decision makers, remain. At least some inadequate Nash equilibria can therefore survive the change of the government. And those would accumulate over the time and eventually lead to the system collapse. We are between a rock and a hard place here: We want to destroy the institution to break the equilibria, but at the same time we want to preserve the institutional knowledge. We don't want to get all the way back to the trees after all. We don't want to get back to the middle ages either.

Last example that comes to mind is IETF, the institution that standardizes how Internet works. The real work, the development of standards, is done in working groups, which have a clear charter that defines what they are supposed to achieve and more importantly, how long would it take. The working group exists for, say, four months, and then dies. Sure, there are IETF institutions other than the working groups and those can survive for longer. But these are mostly doing the support jobs. Organizing meetings, publishing the new standards and so on. The real stuff happens in the working groups.

All in all, I am not at all sure that planned institutional death is a solution to all suboptimal equilibria problems, but the fact that evolution uses it, that it fights dysfunctions, such as cancer, by discarding the bulk of the cells every now and then and preserving only the germline, makes it at least worth of consideration.

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Once I founded a non-profit organization where the bylaws said that only people under 30 years can be elected for the governing body, and if the governing body with N members cannot be elected (e.g. because there are not enough candidates), the organization is automatically disbanded and its resources transferred to an organization with most similar goals (specified in the bylaws; or selected by the previous governing body as their last act if the specified organization no longer exists).

The reason for this ageist rule was that we saw a few non-profits where the existing member base gradually lost contact with the outside world, lost the ability to recruit new members, and gradually became a club of old people who spent most of their time reminiscing about the glorious past, barely doing any activity anymore. So we wanted to block this option of "ending with a whimper". If the organization fails to attract N skilled young members for a decade, it probably fails to achieve its original goals (which explicitly included education and outreach), so it needs to wake up... or die quickly so that the vacuum becomes explicit.

There was no age limit for membership, or the non-governing roles, so the organization didn't have to lose expertise. Member above 30 could still remain in any technical role. But the organization as a whole needed to pay attention to recruitment of new members, at least enough to fulfill the quota for the governing body.

Almost 20 years later, the organization still exists and works according to the original plan.

(Not providing a link here, because I am no longer active in the non-profit, and it is unrelated to rationality.)

In this sense, Stalinist purges is a way of the institutional regeneration. Evert few years, a king replace and kill all his ministers and other officials, and put new people on their places, thus cleaning all Nash equilibriums. But one day they replace the king.

Upvoted for interest, but I'm not sure you've gone deep enough into the model. Specifically, you're mixing the analysis based on whether the institution in question is a closed system, or a partial equilibrium of participants, who also have extra-institutional interactions and goals.

suboptimal Nash equilibrium: Non of the stakeholders can do better by trying to solve it on their own. Such problems are, almost by definition, unsolvable.

Way oversimplified. that's the whole point of institutions - to give avenues for trade and outside-the-equilibrium motivation, in order to let stakeholders solve it together, rather than on their own.

It eventually destroys the institution and, if everything goes well, replaces it with a different one where at least the most blatant problems are fixed.

If these are unsolvable equilibria, how does a new institution fix it? What are the constraints that keeps the old institution from solving it when a new one can? Wouldn't you expect the new ones to be much worse at the problems that the old one _did_ solve?

Yes, it's a toy model. The idea is that equilibrium is only defined with a respect to the game being played. In this case the game is the set of rules (both formal and informal) used in the institution. If institution dies there are no rules. When a new one is crated a new set of rules is established, with different equilibria.

But whether the new rules will be better than the old ones, there's no guarantee. The protesters in arab spring in Syria hoped for better institutions, but they've got civil war instead. The crucial bit seems to be that it's controlled death. What exactly that means though is unclear.

Hmm. I think that toy model is pretty divorced from reality, and any correspondence to actual groups is not due to the modeled factors, but to unstated assumptions about individual and collective (extra-institutional) behaviors.

Regarding the specific case of forgiving debt every N years: wouldn't lenders simply not offer loans that should be paid back after the next jubilee? Imagine, for example, that 2030 is a jubilee year. Then right now (2020) there would be lots of opportunities to take loans that expire, at most, in 10 years. In 2029, however, only short-term loans would be possible. Why would anybody lend you money to be paid back in 2 years if next year that debt will disappear?

Then if, in 2029, you desperately need to take out a long-term loan (e.g. to cover medical expenses), you would be incentivized to sign a contract where you wave away your right to have the debt forgiven. If this kind of contract is forbidden by law, you are incentivized to take out an illicit loan -- backed by illicit violence. Down the drain go the advantages of jubilee.

I can think of only one way to avoid this effect: have the debt-forgiving happen at random. There could be a minimal waiting period to guarantee two jubilees didn't happen too close to each other, after which it had a certain chance of being declared every 1st of January. The bonus would be that it incentivizes lenders to be careful with their landings. It disincentivizes (but doesn't destroy) the possibility of long-term landings, which is specially bad for people with a low income. But those same people would be the most positively impacted by the random debt-forgiveness, so it's a trade-off situation.

Is there another solution?

IIRC from the book, the debt forgiveness in the ancient middle east was mostly done on ad hoc basis (i.e. semi-randomly). Once the king felt that the things are getting out of control he declared all the debt obligations void.