Download SOC 8311 Basic Social Statistics

INSTITUTIONALIST THEORIES of
MARKETS & ORGANIZATIONS
Economic institutions are rules and regulations, with enforcement
mechanisms, that constrain actors’ choices and behaviors.
Actors that conform to taken-for-granted norms, structures, and
practices of markets and organizations are viewed as legitimate,
receive public approval, and access to a variety of resources.
TAKEN-FOR-GRANTED ASSUMPTIONS are beliefs held without
challenge that a homogeneous set of desirable actions and structures
should be rewarded with financial resources, prestige, and public esteem
LEGITIMACY involves normative beliefs by others about the proper,
acceptable exercise of institutional authority (= “legitimate power”)
Institutionalization evolves from informal norms
toward increasing rule codification, sanctioned
by regulatory bodies; e.g., college accreditation.
Old & New Economic Institutionalisms
With Veblen, John Commons (1962-1945) & Wesley Mitchell (1874-1948)
led Old Economic Institutionalism, stressing legal origins, & evolutionary,
habitual, voluntary processes in the formation and change of institutions.
OEI proponents stressed historical, legal, social,
political, & other institutional factors on which
economic “laws” are contingent. The market is
not immutable, rather economic behaviors are
conditioned by changing historical influences,
especially evolution of societal institutions that
shape an individual actor’s beliefs and actions.
OEI was receptive to bringing the other social sciences into economics to help
understand the origin and development of institutions. But by 1930s, oncedominant OEI was eclipsed in U.S. by neoclassical & Keynesian economics.
In stark contrast, New Economic Institutionalism relies on neoclassical econ
principles to show how institutions result from individual actor’s preferences,
transaction costs, legal property rights. Key NEI theorists include Ronald
Coase, Oliver Williamson, Douglass North, Armen Alchian, Harold Demsetz.
Everything Old is New Again
Contemporary economists reintroduced “traditional” institutionalism by
rejecting NIE’s reduction of institutions to preferences and technologies.
“Tastes” affect institutions, but are also shaped and constrained by them.
Geoffrey Hodgson argued that to regard actors only
as rational utility-maximizers is either “inadequate
or erroneous.” People’s preferences don’t simply
create the institutions within which they work and
live their lives. Instead, by various processes of
“reconstitutive downward causation,” institutions
come to “affect individuals in fundamental ways.”
 How did advertising and marketing institutions develop that shape
consumer choices? (Are your decisions never affected by ads?)
 Do consumers have any influence on the advertising industry?
 What governmental & private-sector institutions regulate advertisers’
claims about product/service safety and quality? How effectively?
The Great Divide
Talcott Parsons (1902-79) foisted a theoretical division of labor between
economics & sociology – allocation of means vs. ultimate “value factor.”
Both disciplines neglected to theorize & investigate economic institutions.
Parsons’ AGIL scheme of functional system problems, with
four subsystems specializing in meeting a society’s needs for:
Adaptation: acquire sufficient resources; economy & business
Goal Attainment: set and implement goals; politics & government
Integration: maintain solidarity & subunit coordination; courts, religions
Latency: create, preserve, transmit culture & values; family, education
In Economy & Society (1956), Parsons & Neil Smelser subsumed economic
theory as “a special case of the general theory of social systems:”
• Money, power, value, influence are four fundamental generalized media of exchange
• Apart from mediating purchases, money is also a cultural object with social meanings
• Markets and firms (core economic subsystem structures) follow utility-maximizing
principles viewed as illegitimate for other subsystems: families, churches, courts, ...
• Explaining how complex exchanges of these four symbolic media across the four AGIL
subsystems can functionally integrate a society is a central theoretical task for sociology
Institutions Redux
Only when economic sociology revived in the 1980s was the study of
economic institutions restored to a theoretically central position.
Mark Granovetter (1985) had imperialist aims – to substitute social
action theory for neoclassical explanations of economic behavior:
1. Economic action is embedded in networks of social relations
2. It is directed at pursuit of both economic and noneconomic goals
3. Economic institutions are socially constructed
How well has this agenda succeeded in creating “an elaborate
conceptual apparatus” to challenge mainstream economics?
How are noneconomic goals such as “sociability, approval, status,
power” involved in pursuing economic goals? Examples?
Has sociological institutional theory generated empirical work that better
explains economic behavior than does neoclassical utility theory?
3 Pillars of Sociological Institutions
Dick Scott defined institutions as “multifaceted, durable
social structures, made up of symbolic elements, social
activities, and material resources. … They are relatively
resistant to change.” His typology comprised 3 pillars:
Regulative
Normative
Cultural-Cognitive
Basis of
compliance
Expedience
Social obligation
Taken-for-grantedness
Shared understanding
Basis of
order
Mechanisms
Regulative rules
Binding
expectations
Constitutive schemes
Coercive
Normative
Mimetic
Logic
Instrumentality
Appropriateness
Orthodoxy
Indicators
Rules
Laws
Sanctions
Certification
Accreditation
Common beliefs
Shared logics of
action
Basis of
legitimacy
Legally
sanctioned
Morally governed
Comprehensible
Recognizable
Culturally supported
Org’l Myths & Ceremonies
Orgs mirror societal conventions, playing lip-service to dominant values
& norms. A loose-coupling occurs between org’l facades & operational
cores, e.g., bureaucratic schools wherein classroom anarchy prevails.
Organizational field members develop shared meaning
systems, a consensus about desired qualities, values, and
behaviors. Institutionalizing common understandings
requires that “social processes, obligations, or actualities
come to take on a rule-like status in social thought and
action” (John Meyer & Brian Rowan 1977:341).
Symbolic meanings are embedded into formal structures
and routine practices permeating everyday org’l life.
Institutionalized routines often exhibit faddish, ritualistic, ceremonial &
mythic elements largely unrelated to rational efficiency or effectiveness
(DMV “red tape,” UM cap-and-gown rites). Organizational structures
and practices persist as traditional customs and habits, regardless of
their rationality, but simply because plausible alternatives to traditions
grow unthinkable. “In other words, institutionalized acts are done for no
other reason than that is how things are done” (Pfeffer 1982:240).
Mechanisms of Isomorphism
Citation classic by Paul DiMaggio & Woody Powell (1983) proposed three
mechanisms generating isomorphic conformity (convergence around a
single form), thereby reducing variation within industries & org’l fields.
☼ Coercive isomorphism stems from
political influences and cultural expectations
☼ Mimesis arises in uncertainties leading to
imitation of apparently successful forms
☼ Normative pressures originate in
occupational communities & professional assns
Causal ambiguities about org’l performance
– especially in government & nonprofit
sectors, but even in business – promote a
slavish mimicry in the diffusion & adoption of
the hottest management fads & fashions:
Taylorism, M-form, Human Relations, Matrix,
Theory Z, TQM, ISO, BPR, etc. ad nauseum.
Institutionalized Market Hazards
Wayne Baker & colleagues modeled markets as intertemporal processes
which integrate theories of competition, power, and institutional forces.
EHA market ties of 1,644 advertising agencies & clients found informal
exchange rules institutionalized in emergence of the ad-services market:
exclusivity (sole-source) and loyalty (infrequent agency switching).
Altho most institutional forces reduce the risk of breaking agency-client
ties, competition increases it. Powerful agencies mobilize resources to
increase tie stability, but powerful clients mobilize resources to increase
or decrease stability. This market is imperfectly institutionalized as
repeated patterns of exchange, because competition and changing norms
about the duration of market ties destabilize market relationships.
An illegal price-fixing cartel in the U.S. electrical industry relied on the
social structure of committee meetings to ameliorate its members’
competitive difficulties in the market:
• Cartel continuity was responsive to market conditions that favored a
cartel’s formation.
• Centralization of the cartel’s authority in decision making resulted in
more effective collusive pricing.
Stock Market as Institution
Stock & financial markets are social institutions, not just efficient arenas
to raise capital and set share prices by supply-&-demand exchanges.
“…nearly all sociological research on money, financial markets,
and banking at least implicitly assumes that financial relations are
social relations. ... Rather it suggests that sociologists can (and do)
usefully inform studies of a subject most often associated with
another discipline. … [They] usefully extend knowledge about
social interaction developed in other subfields of the discipline to
improve understanding of banking and finance.” (Lisa Keister 2002:53)
Analysts should try to identify the conditions where
the institutional rules of a financial market are
“followed, not followed, transgressed, or transformed.”
H: When uncertainty is high, actors deal with trusted
past partners to avoid malfeasance and opportunism
H: They access partners’ networks to obtain reliable
information about potential partner trustworthiness
Stock Market as Social Construction
Institutionalists depict stock market behaviors as socially constructed, in
contrast to mainstream economics’ view of market’s efficient rationality.
Zajac & Westphal (2004) suggested that market reactions to
stock repurchase plans were influenced by the mid-1980s U.S.
emergence of the agency perspective on corporate governance.
This powerful new institutional logic led the market to reverse
its prior negative reaction to repurchase plans. They proposed
competing hypotheses about how the market value of these
policies might have increased as more firms formally adopted,
but did not implement, the stock repurchase plans over time.
Zajac & Westphal posited that institutionalization processes could increase the
collective appraisal of the policy’s market value as more and more firms adopt it
(mimesis), despite the growing evidence of insitutionalized decoupling. In
contrast, neoclassical economics predicts that markets should discount a policy’s
value when evidence accumulates of nonimplementation.
Ezra Zuckerman (2004) criticized Z&W’s quick dismissal of orthodox economic
explanations. Sociologists “would do well to consider and incorporate in some
way” the economists’ intuitions into the social construction of financial markets.
Discussion Quex
1.
Can Hodgson’s four defining characteristics of institutional economics
distinguish OEI from NEI? Where does the new sociological institutionalism
fit into this picture?
2.
Give some examples of “reconstitutive downward causation” from institutions
to individuals & also the reverse causal direction.
3.
“How do we explain this lack of co-operation” (Velthuis) between new
economic sociology and institutional economics? Was Talcott Parsons really
to blame?
4.
What would you propose as an appropriate division of academic labor
between sociology & economics?
5.
How useful is Ingram & Clay’s 2x2 classification of institutional forms
(public/private, centralized/decentralized) for theorizing about choice-withinconstraints? How can we go about building a “better theory about private
decentralized institutions”?
6.
Many critics fault institutionalism for its static, conservative biases. What
elements should be included in a theory of institutional change and evolution?
7.
How could Granovetter’s imperialistic ambitions (hubris?) best be achieved –
to replace the neoclassical economic explanation with an alternative socially
constructed framework for understanding economic actions?
References
Baker, Wayne E., Robert R Faulkner and Gene A. Fisher. 1998. “Hazards of the Market: The Continuity
and Dissolution of Interorganizational Market Relationships.” American Sociological Review 63:147-177.
DiMaggio, Paul and Walter Powell. 1983. “The Iron Cage Revisited: Institutional Isomorphism and
Collective Rationality in Organizational Fields.” American Sociological Review 48:147-160.
Faulkner, Robert R., Eric R. Cheney, Gene A. Fisher and Wayne E. Baker. 2002. “Crime by Committee:
Conspirators and Company Men in the Illegal Electrical Industry Cartel, 1954-1959.” Criminology
41:511-554.
Keister, Lisa. 2002. “Financial Markets, Money, and Banking.” Annual Review of Sociology 28:39-61.
Meyer, John W. and Brian Rowan. 1977. “Institutionalized Organizations: Formal Structure as Myth and
Ceremony.” American Journal of Sociology 83:340-363.
Scott, W. Richard. 2001. Institutions and Organizations, Second Edition. Thousand Oaks, CA: Sage
Publications.
Zajac, Edward J. and James D. Westphal. 2004. “Should Sociological Theories Venture into ‘Economic
Territory?’ Yes!” American Sociological Review 69(3):466-471.
Zajac, Edward J. and James D. Westphal. 2004. “The Social Construction of Market Value:
Institutionalization and Learning Perspectives on Stock Market Reactions.” American Sociological Review
69:433-457.
Zuckerman, Ezra W. 2004. 2004. “Towards the Social Reconstruction of an Interdisciplinary Turf War.”
American Sociological Review 69:458-465.