Modeling the Governance Triangle: An Agent-Based Approach to Civil Society, Markets, and the State

Abstract

This paper presents an agent-based model (ABM) that operationalizes the theoretical framework proposed by Bowles and Carlin (2026) in ``The Governance Triangle: Economic Interactions in Civil Society, the State, and the Market.'' We develop a computational simulation that captures the three vertices of governance---market enforcement, state regulation, and civil society norms---and examine how endogenous preferences, social networks, and inequality shape economic outcomes. Our results confirm Bowles and Carlin's central thesis: civil society governance exhibits comparative advantage under conditions of low inequality and incomplete contracts, but this advantage erodes when wealth disparities are substantial. We further demonstrate two critical mechanisms highlighted in the original paper: (1) \textit{complementarity}, where state or market institutions can reinforce social norms, and (2) \textit{crowding-out}, where excessive external monitoring undermines intrinsic motivation. The ABM provides a flexible platform for policy experimentation and suggests that optimal institutional design often requires hybrid configurations within the governance triangle rather than pure-type solutions.

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