Mental models and the cost of institutions

Abstract

Why was culture important in Japan in structuring and ordering markets and shaping socio-economic incentives? A fundamental reason lies in the internalized culture in Japan. Since the belief and value system of the Japanese, at least before the Meiji Restoration, in the deep internalized part of culture was based on concerns about others nearby, with whom individuals interact in this world as well as in the imaginary process of transmigration, and others nearby differ significantly among individuals, it is costly to arrive at the sharing of mental models. It follows that the comparative advantage in the technology of social building for Japan, where the sharing of mental models is difficult and collective intentionality is low, was not in institution building but rather in cultural development.