ABSTRACT
This chapter has two aims. First, it articulates and defends a conception of institutions as the equilibria that result from the rational choices of individuals. Second, it shows that utilitarians face particular strategic problems in holding such a conception. An equilibrium is a state of affairs in which every agent does as well as one can for oneself, given what every other agent is expected do. Some rules of coordination, like the meaning of words or the habit of driving on the right, arise spontaneously among agents who follow them. But at times problems of coordination arise from the fact that there are many possible equilibria. The general solution to the problem of cooperation among the rational and self-interested lies in iteration and reciprocity. Complexity is the introduction of a division of labor between agents in bringing about an equilibrium.
