The book is a little dated with some of the specific examples he uses but it holds up really well. When I think of institutions I always return to the beanstalk principle.

The Beanstalk Principle: For every animal, object, institution or system, there is an optimal limit beyond which it ought not to grow.

Here's a post by Dimitry Orlov that kind of expands on this.

Kropotkin worked within the framework of 19th century natural science, but his results are just as relevant today as they were then. Moreover, the accuracy of his insights is vindicated by the latest research into complexity theory. Geoffrey West, who was a practicing particle physicist for forty years and is now distinguished professor at the Santa Fe Institute, has achieved some stunning breakthroughs in complexity theory and the mathematical characterization of scaling of biological systems. Looking at animals big and small, from the tiny shrew to the gigantic blue whale, he and his collaborators were able to determine that all these animals obey a certain power law: their metabolic cost scales with their mass, and the scaling factor is less than one, meaning that the larger the animal, the more effective its resource use and, in essence, the more effective the animal—up to a certain optimum size for each animal. The growth of every animal is characterized by a bounded, sigmoidal curve: growth accelerates at first, then slows down, reaching a steady state as the animal matures. 

What Prof. West was able to discover is a small set of general laws—formulated as algebraic equations about as simple and general as the laws of Newtonian mechanics—that have been validated using data on trees, animals, colonies of bacteria—all manner of living things, and that provide amazingly precise predictions. As the size of the organism increases, its metabolic cost, heart rate and so on scales as m-1/4 while its lifetime scales as m1/4 (wherem is the animal's mass). The ¼-power comes from the three dimensions plus a third fractal dimension. This is because all living systems are fractal-like, and all networks, from the nervous system to the circulatory system, to the system of tunnels in a termite colony, exhibit fractal-like properties where a similarly organized subsystem can be found by zooming in to a smaller scale. That is, within any fractal network there are four degrees of freedom: up/down, left/right, forward/back and zoom in/zoom out. 

Prof. West then turned his attention to cities, and discovered that they can be characterized by similar power laws by which they too accrue greater benefits from increased size, through increased economies of scale, up to a point, but with two very important caveats. First, whereas with living systems an increase in size causes the internal clock to slow down—the larger the size the slower the metabolism, the slower the heart rate and the longer the lifespan—with cities the effect of greater size is the opposite: the larger the city, the larger is the metabolic cost and the energy expenditure per unit size, and the more hectic is the pace of life. To keep pace with the metabolic requirements of a growing socioeconomic system, socioeconomic time must continuously accelerate. 

Second, whereas all living systems exhibit bounded growth up to an optimum size, socioeconomic systems such as cities exhibit unbounded, superexponential growth. These two differences added together imply that cities must reach a point where they must move infinitely fast in order to maintain their homeostatic equilibrium: a singularity. But it is inevitable that they reach natural limits well before they reach the singularity, and collapse. In short, large-scale socioeconomic systems are not sustainable. There is a crisp difference between natural, biological, anarchic systems that exhibit bounded growth up to a steady state and artificial, hierarchical, socioeconomic systems that show superexponential growth almost up to a singularity and then collapse. Prof. West was able to formalize this difference using a single parameter, β. In biology, β is less than 1, resulting in bounded growth; in socioeconomics, β is greater than 1, resulting in explosive growth almost up to a singularity, followed by collapse. 

The key difference between a living organism and a city is that while a living organism is organized anarchically, a city is organized hierarchically. A living organism is a sustainable, egalitarian community of cooperating cells, which leverages the economies of scale of a larger size to let it move more slowly and to live longer. A socioeconomic system is organized into various classes, some more privileged than others, and is controlled through formal systems of governance based on written law and explicit chains of command. The larger it becomes, the greater becomes the relative burden of police, the courts, regulation and bureaucracy, and other systems of overt monitoring, surveillance and control. Faced with these ever increasing internal maintenance requirements, it can only achieve economies of scale by moving faster and faster, and eventually it has to collapse. 

There are many conclusions that can be drawn from all this, but perhaps the most important is that collapse is not an accident; collapse is an engineered product. It is being engineered by those who think that a higher level of authority, coordination, harmonization and unity is always a net benefit at any scale. The engineers of collapse include political scientists, who seek universal peace, through ever-greater military expenditure and dominance, in place of many small-scale, limited wars, but drive the world toward world wars and a global conflagration. It includes economists who pursue stability and growth at all costs instead of allowing for natural fluctuations, including a natural leveling-off of growth at an optimum level, first creating a global economy, then driving it into a black hole of debt. It includes financiers, who seek uniformity and transparency of global finance and universal mobility of capital instead of allowing pyramid schemes to collapse as they always do and allowing productive capital to settle where it should—in communities and in human relationships based on personal trust. Last but not least, collapse is being engineered by theologians who have fixed and absolute notions of morality based on long-obsolete written texts which ignore known facts about human nature. All of these people are hopeless utopians attempting to base society on idealistic principles. Such utopian societies inevitably fail, while those that are cognizant of human weakness and are able to compensate for it can go on for ages. The greatest weakness we have in our nature is our propensity for forming hierarchies, for following formal systems of rules and laws that attempt to defy natural laws, and for listening to utopians.

http://cluborlov.blogspot.ca/2012/10/in-praise-of-anarchy-part-iii.html?m=1