Why Efficient Reforms Fail: Endogenous Game Transformation under Status Quo Bias and Social Preferences

TL;DR

This paper models how societies' resistance to institutional reforms is influenced by game transformations, social preferences, and inertia, explaining why some reforms fail despite being beneficial.

Contribution

It introduces a formal model distinguishing soft and hard interventions in game transformations under social preferences and inertia, explaining their different effectiveness.

Findings

Hard interventions like deletion can bypass inertia, unlike soft taxes.

Social preferences can block reforms even if they are individually beneficial.

Hard feasibility restrictions often dominate soft incentives under inertia.

Abstract

Why do societies remain stuck in inferior institutions even when superior al ternatives are widely recognized? This paper develops a model in which agents choose not only actions within a game but also transformations of the game it self. Transformations may be soft, changing payoffs through taxes or subsidies, or hard, changing feasibility through deletion or replacement of actions. Within a coordination model with status-quo bias (switching cost) and boundedly rational play (logit quantal response), we show that these interventions are qualitatively different: finite taxes shift behavior continuously but cannot eliminate residual use of the inherited action, whereas deletion bypasses inertia by removing the action from the feasible set. We further characterize how antagonistic social preferences at the meta level can block reforms that are individually beneficial for every player. The framework provides a formal rationale for why hard feasibility restrictions of ten dominate soft price incentives under inertia, with direct applications to climate transition (carbon tax vs. fossil-fuel phase-out) and platform regulation (fines vs. deletion of addictive features).