Delacroix and Carroll (1983) argue that the founding rate for a particular kind of organization depends on the flow of recent foundings (the crude founding rate) rather than on density per se. They found that founding rates in populations of newspaper firms have cycles and that the cyclic behavior can be fitted well by a quadratic function of foundings in the prior period. The number of foundings in one period affects the number of foundings in the succeeding period, but this effect diminishes with the magnitude of the prior founding rate. Delacroix and Carroll suggest that this pattern is consistent with an imitative process in which potential entrepreneurs use a high founding rate as a signal that opportunities are favorable but also respond to saturation of the market.
Parallel arguments pertain to mortality processes. High numbers of dis- bandings, for example, may make it difficult for members of a population to convince those who control resources in the environment to continue flows of essential resources. It may also encourage the foes of the population to conduct an intense offensive against it. We explore these issues in Part III with respect to disbandings (and mergers) by including counts of recent disbandings (and mergers) in models like equation (6.7).
In Chapter 1 we suggested that the gains from creating new kinds of organizations are greatest when diversity is low (see also Hannan 1988a). When only a few kinds of organizations operate in a market or sector, at least some potential demand for goods and services is either unfilled or met only partially. On the other hand, when diversity is high, markets tend to be packed tightly with few unexploited resources or opportunities. Rational organization- builders respond to these differences; they are more likely to take the risk of beginning an organization when diversity is low.
A possible countertendency must be noted. When diversity is low, a few organizations or a few organizational forms can more easily dominate a sphere of activity. If these few organizations have high market power, they may be able to prevent other organizations from getting started. For example, they may pressure banks and suppliers to deny credit to new ventures. (If this intervention occurs early in the process of organization building it will imply low founding rates; otherwise it means high disbanding rates at early ages.) Just as important, the dominant organizational forms in low- density sectors are likely to become institutionalized as the “natural” organizational forms for the activity in question. When the prevailing organizational forms are highly institutionalized, it may be difficult to mobilize support for heterodox organizational solutions. Moreover, when diversity is low there are few models of organization with which to experiment and try recombinations. Such a situation yields high returns to deviance but low rates of attempting deviance.
Nielsen (1986) found an instance of negative diversity-dependence in studying the spread of a new organizational form: Flemish separatist political parties in Belgium in the post-World War II period. The new challenging party gained votes most rapidly in those electoral districts (cantons) with the lowest levels of prior political diversity. Electoral districts in which one party had dominated were less tightly packed electoral markets than those in which two or three parties had reasonably large shares of the vote. Although this analysis considered the spread of an organizational form over social space, electoral success in a local district presumably requires the creation of a local political organization. In this sense, Nielsen’s findings bear on the issue under discussion. The rate at which these new kinds of local political organizations can be created is highest in political environments with low diversity but with laws allowing free electoral competition.
Source: Hannan Michael T., Freeman John (1993), Organizational Ecology, Harvard University Press; Reprint edition.