Professor Klaus Nielsen, Roskilde University
A research nettwork :Institutions, actors and institutionalization
The background and the purpose
It is the ambition of the research network to contribute to the further development of institutional theory (with particular emphasis on contributions from economics and sociology) through dialogue between different approaches and joint work with areas of common interest. In recent years, various strands of institutionalist theory have emerged within all the social science disciplines. Relations between the different institutionalisms have proceeded through different stages. In a recent article in Journal of Institutional and Theoretical Economics, DiMaggio distinguishes three stages: from "constructive disengagement" through "mutual criticism" to the present stage where scholars are finding common interests around shared explanatory dilemmas. This network is based on the idea that scholars from different approaches may benefit from dialogue and collaboration around common theoretical challenges and overlapping themes. Furthermore, whereas it may be a bad idea to attempt to achieve syntheses where methodologies and explanatory objectives of the various approaches clearly diverge, it may be a good idea to overcome unnecessary and outdated disciplinary boundaries and join efforts based on different positions of strength in joint work on themes, challenges and dilemmas of common interest.
The network organization
The research network is based at the Department of Social Sciences at Roskilde University, Denmark. The core group consists of thirteen scholars from the department organized around a long-term research program titled "Institutions, actors and institutionalization". In addition, scholars from other Danish universities and a group of leading international scholars within the field also take part in the network. Professor Klaus Nielsen, Roskilde University, is network co-ordinator. Jeanett Allshauge is its secretary.
The network has been granted support from the Danish Social Science Research Council for a period of three years from September 1999 to September 2002. The funding makes possible the organization of an international conference and a number of workshops, seminar series at Roskilde University, visiting professorships, participation at international conferences and workshops, guest scholarships abroad, and publication of books, research reports and working papers. The planned activities are presented in more detail below after a brief outline of the institutional approaches included, their differences and similarities, the common challenges, and the themes of research which organize part of the collaboration within the network
Institutionalisms in economics and sociology (and political science)
The research network includes representatives from the following five institutionalist approaches in economics and sociology (and political sciences):
new institutional economics (NIE)
old institutional economics (OIE)
new economic sociology (NES)
new institutionalism in sociology and organization theory (NIO)
historical institutionalism (HI)
NIE has experienced an impressive growth in recent years and in some fields where its challenge to neoclassical economics has been widely successful NIE has even now become part of the mainstream. Simultaneously, we have seen the emergence of institutional-evolutionary economics as a sort of revival of the tradition of the "old" institutional economics (OIE). More recently, NES has developed as a promising subfield in sociology which openly challenges the traditional division of labour between economics and sociology as is also the case with NIE. Many other sociologists, in particularly those engaged in organization studies, define their approach as "new institutionalism" (NIO). In addition to these four approaches (two from economics and two from sociology), also HI (an institutionalist tradition within political science) is represented among the members of the framework.
Differences and similarities
OIE and NES are in some respects rather close methodologically and as far as explanatory objectives are concerned. However, they originate from separate disciplines and mutual dialogue is even today rather limited. More interaction may help to clarify issues and contribute to better explanations of real world phenomena. NIE and NIO represent approaches associated with the dominant approaches in economics and sociology respectively: rational-choice institutionalism vs social-constructivist institutionalism. The two traditions diverge quite substantially as far as methodologies and also explanatory objectives are concerned. However, even scholars such divergent traditions increasingly find common ground around problems that none of them can address in a satisfactory way within the framework of each paragdigm. For instance, new institutionalist economists such as North point out that rationality is to a certain extent socially constructed through mental models shaped by ideologies, whereas new institutionalist sociologists attempt to integrate concepts such as transaction costs and to learn from the literature on property rights, contracts and agency problems, etc. Recent developments in NIE which opens the door for integrating cognitive and normative aspects also provides a fertile ground for dialogue with OIE which has always stressed the role of these aspects.
Within current political science, there are three types of institutionalism: 'rational-choice institutionalism', 'new (political) institutionalism', and 'historical institutionalism'. The two first types are indirectly represented in this network. Rational choice institutionalism resembles NIE, and new (political) institutionalism is in many ways hard to distinguish form NIO. The third type, HI, can be seen as the classical "political" type of institutionalism as it stresses collective action and group conflict. Representatives from HI are included in this network for at least two reasons. First, HI can in some ways be seen to represent a sort of methodological middle ground between NIE and NIO as it integrates elements from each of these at the same time as it represents a genuinely unique approach. Second, scholars within the HI tradition have been prominent among those attempting to build bridges between the different approaches.
In addition to the overlap and the joint challenges mentioned above, one further reason for dialogue and collaboration shall be mentioned. Concepts from different approaches, such as 'network externalities', 'innovation systems', 'modes of regulation' and 'business systems', currently emerge and spread as examples of the joint endeavours to understand the path-dependent, complementary and context-dependent features of economic and organizational development. Such theoretical efforts to understand the specific are in many ways extremely helpful. However, joint efforts to strike a balance between the general and the specific, based on an analytical integration of the regulative, normative and cognitive roles, or the constraining and enabling roles, of institutions, as these have traditionally been partially stressed in economics and sociology, respectively, may be worthwhile as well.
The aims of the network
The objectives of the research collaboration are, first, to develop an updated understanding of the variety as well as the overlap among the various institutional approaches; second, to develop a state-of-the-art overview of promising joint themes, problems and future challenges as a basis for future collaboration; and, not the least, third, to engage in such joint work within selected themes and problems. Whereas the first two objectives are pursued in the on-going seminars and the publication activities within the network as well as the final conference, the third one is the subject of four international workshops during the network period organized around four themes.
There are many overlapping interests and promising themes of dialogue and collaboration. In the above-mentioned article by DiMaggio three common challenges for future joint endeavours are outlined: how to develop an evolutionary approach; how to conceptualize society as "constructed reality"; and how to take account of the prevalence of various types of networks and their relations to (other) institutions.
This research network has four themes which more or less integrates these three challenges. The themes are the following:
"Uncertainty and ambiguity; mental models and institutions"
"Social capital, trust and networks"
"Knowledge, learning and institutions"
"Cognitive processes, values and institutional change"
Next, each of the themes will be briefly outlined. The presentation is necessarily rather general. Forthcoming working papers will review the fields more extensively. Below, particular emphasis will be put on the relevance to and the contributions from each of the theoretical traditions included in the network, and the prospects for future collaboration to further develop our understanding.
Uncertainty and ambiguity; mental models and institutions
Uncertainty can be distinguished from risk and understood as the character of situations in which agents cannot anticipate the outcome of the decision and/or cannot assign probabilities to the outcome. Subjectivist economists and proponents of the rational expectations school treat uncertainty as probabilistic risk. It is claimed that economics cannot maintain neither the maximization assumption nor equilibrium models in face of situational structures characterized by non-probabilistic uncertainty. However, there have been important contributions within economic theory to understand the implications of such genuine uncertainty, in particular, in relation to the analysis of investment and innovation. In situations of uncertainty, the behaviour of economic agents is guided by mental models which, in turn, are dependent on the institutional framework of the economy. Contributions by economists from NIE as well as OIE have extended our knowledge along these lines. Within sociology, it is argued that the problem of uncertainty provides a vantage point for a sociological alternative to orthodox economics (for instance, the French convention school and Beckert). The task of NES is seen to develop concepts and engage in empirical investigations as to how intentionally rational agents reach decisions under uncertainty instead of studying when and how actors deviate intentionally from selfish goals guided by non-rational principles. Sociologists stress the social interaction necessary to interpret and make sense of uncertainty, and to co-ordinate action in such situations. Uncertainty makes it impossible for actors to deduce their actions from preferences, because the actual effects of actions cannot be fully anticipated; therefore, it becomes important to look at those cognitive, structural and institutional mechanisms that agents rely upon when determining their actions without knowing what to do in order to maximize their income.
Situations characterized by ambiguity pose similar theoretical challenges. Sometimes preferences or ends cannot be treated as stable and consistent but must rather be seen as shifting and ambiguous because they are composed of elements which are hard to combine or rank in unambiguous ways. Furthermore, often the interpretation of facts and accordingly the behavioral consequences are not at all clear-cut but rather ambiguous. Even if parallels exist at the individual level the phenomenon of ambiguity is perhaps more relevant in relation to units of decision making composed of different individuals, and the phenomenon attracts most attention in organization theory. Organizations are often confronted with ambiguous decision-making situations because of the variety and conflicts of values, goals and interpretations internally in the organization as well as in the relation between the organization and various stakeholders of the organization. New contributions to organization theory can be seen as focusing on the role of the mental models and the institutions developed to handle the problems of ambiguity. The elusive link between information and decision making makes it necessary to focus on the actual procedures for handling of information guided by cognitive schemes and institutional frameworks.
The sociological and economic approaches of this network seem to converge in their approach to the implications of uncertainty and ambiguity. The ideas of economists who are concerned with the mechanisms for reducing the contingencies that arise from the indeterminacy of situations of uncertainty and ambiguity, such as hierarchical structures, habits and routines, are connected to sociological approaches to the problem of social order. At this stage, more direct collaboration around this theme is probably worthwhile.
Social capital, trust and networks
In recent years, the related concepts of social capital and trust have gained prominence in social science. The institutional framework of well-functioning economies seems to be based on shared trust, or more generally, on the existence and generation of social capital. The answer to the crucial question of if and how to create trust and social capital have important implications for economic governance. Various types of networks can be seen as central in this respect. Social capital is the more inclusive concept which according to one popular definition (Putnam) "refers to features of social organization, such as trust, norms and networks, that can improve the efficiency of society by facilitating co-ordinated actions. Social capital can be seen as a conceptualization of the glue that facilitates transactions, cooperation and learning in an uncertain world. Part of social capital can be internalized as private benefits (the mutual advantages for the participants in personal networks) whereas another part has common good character (norms and generalized trust).
Trust can be defined as the mutual expectation that no party to an exchange will exploit the others´ vulnerability. New Institutional Economics uses the concept of opportunism which presupposes the general absence of trust. The different bases of trust (embedded in narrow family or locally based networks versus more generalized and diffused forms of trust) in different societies are seen as explanations for different varieties of capitalism (e.g. Fukuyama). Similarly, stable pattern of regional agglomeration and specialization in the turbulent global economic environment is seen to caused by the increasingly important role of the locality as a space for processes of localised learning. This is in turn dependent on the existence of shared trust embedded in local institutions.
Whereas there is general agreement that different stocks of social capital and the prevalence of trust versus opportunism may be important explanatory variables, there is wide disagreement whether trust can be created and social capital be instrumentally expanded. A certain fatalism is widespread: it is maintained that trust can be found, but never created. Likewise. norms are often seen to change in the very long run and not with any instrumental or foreseeable connection with societal intervention and reform. The last element of social capital, networks, can probably more easily be created. Other authors claim that trust can be created, for instance, thorough the establishment of new forms of interaction and with new interpretations and mental models as the intervening variable.
Social capital was originally conceptualized by sociologists such as Bourdieu and Coleman. The concept has been popularized thorough the works of the political scientist Putnam, and, recently, it has been taken up as an important concept in analyses of the World Bank and used by several economists. Contributions by sociologists such as Granovetter pointed at the crucial importance of networks in economic transactions. Also, economists and political scientists have begun to use extensively the concept of networks. There seems to be good reasons for more dialogue and collaboration among authors of different disciplinary origins.
Knowledge, learning and institutions
Concepts such as the knowledge-based economy and the learning economy have become increasingly popular in recent years. The stress on knowledge and learning constitutes a shift of perspective and a new focus: from the allocation of given and scarce resources to the creation, distribution and use of new resources. In a way it is paradoxical that the focus on economic change goes hand in hand with a growing interest in institutions. After all, institutions are often understood as phenomena that restrict and pattern behaviour and are responsible for stability and order rather than change and learning. However, processes of new knowledge formation, that is, learning processes, are social and interactive and dependent on the institutional set-up of the economy.
Learning involves complex processes of direct and indirect learning as well as forgetting. Four different kinds of knowledge and learning can be distinguished: know-what, know-why, know-how and know-who. Whereas, in principle, the two first forms of knowledge are explicit and codifiable and may be traded on markets, the two last forms are tacit and untradable and requires non-market allocation (for instance, within the firm, in the context of inter-firm networks or forms of co-operation between private agents and public institutions). The relationships between codified and tacit knowledge seem to change. One of the important trends in modern economies is the increasing importance of codified knowledge. However, this does not necessarily reduce the importance of tacit knowledge. For instance, the easier and less expensive access to information makes (tacit) competencies in selecting and using information more important than before. According to Lundvall, the most fundamental aspect of learning is perhaps the transformation of tacit into codified knowledge and the movement back to practice where new kinds of tacit knowledge are developed. Various new theories conceptualize the institutional factors which facilitates co-operation, in general, and learning processes, in particular: innovation systems, business systems, network externalities. Also the concepts of trust and social capital are increasingly being applied in attempts to understand these underlying institutional features. Learning can also be seen as one type of adaptation of an organization to its environment. The problem is trivial if learning is seen as simple stimulus-response adaptation as was the case when behaviorism was dominant in organizational theory, and if decision making is seen as determined by stable preferences and the logic of consequentiality. However, in theories of organizational learning the behaviorist stimulus-response model have given way to a stimulus-cognition-response model. In addition, NIO has pointed out that rules (procedures, organizational forms, norms, routines) constitute the foundation of organizational behaviour which implies that the logic of appropriateness (in relation to established rules) is at least just as important as the logic of consequentiality (March & Olsen). Accordingly, theories of organizational learning emphasize the cognitive processes among organizational agents, the role of rules and the interactive processes of learning in loosely coupled organizations. Leaning processes in organizations is a booming field in organizational theory and have been intensively studied in NIO. However, this has only marginally been integrated in studies of the knowledge-based and learning economy. Generally, this theme appears to constitute an obviously fertile ground for collaboration and cross-fertilization between economics and sociology.
Cognitive processes, values and institutional change
Mental models are not only important in situations of radical uncertainty. If it is recognized that information is generally imperfect, then it becomes clear that individual perceptions of the economic choice set generally varies and the cognitive dimension comes to the forefront of the analysis. Simon has made pioneering contributions in this respect. He explains sub-optimal decision-making by cognitive limitations. However, such limitations are seen as something, which can, in principle, if not in practice, be overcome. This has lead to criticism from OIE (e.g. Hodgson) for ignoring the social influences on the process of decision-making and the institutional aspects of the complex transformation of sense data via bits of information to knowledge. Hodgson and other economists and sociologists rather stresses the cultural specificity of cognition and the generation of information through pre-established interpretative schemes.
Following Simon's analysis of cognitive limitations, contributions within NIO have developed models of decision-making such as 'garbage can' processes which break with the so-called myth of rationality. North has concluded that rationality is necessarily imperfect, that procedural ideas and ideologies matter, and that institutions play a major role in determining how much they matter. Ideas and ideologies are seen to shape the mental constructs that individuals use to interpret the world around them and make choices. Institutions deliberately or accidentally increase or decrease the price on acting upon one's ideas and thereby influence the role of mental constructs and ideological stereotypes. North recognizes the central role of ideologies and its insufficient attention in economics as well as the incapability of analyzing this role by means of economic theory alone.
Other contributions, stress similar mechanisms by using the concept of values. Cognitive processes at both the individual and the organizational level are seen as fundamentally shaped by values. NIO analyzes how conflicting and ambiguous values are handled in organizations as well as the consequences of these processes.
The role of cognitive processes and values in relation to institutional change is a particularly important issue. If economic behaviour is seen as normally to a large extent guided by habits, routines and norms, but occasionally punctuated by novelty, change and creation, it becomes important to study the role of mental constructs in this respect. The role of ideas and the relation between ideas, interaction and instiutional change has been studied mainly by political scientists from the HI tradition (e.g. Hall and Campbell). Also sociologists have made central contributions in this area (e.g. Dobbin).