1. Transnational-Level Studies
Early studies of institutional building at the transnational level were pursued by political scientists employing a “realist” approach. These scholars focused attention on nation-states as the primary actors and assumed that, to the extent that they constructed or participated in international institutions and regimes, such as the World Trade Organization, they were rationally pursuing their interests/preferences (e.g., Morgenthau 1948). Subsequent scholars, such as Keohane and Nye (1977), broadened the canvas to include non-state players such as INGOs and the independent role played by economic actors and pro- cesses. And more recently, realist approaches have been joined and challenged by “constructivist” scholars who are more open to a diverse range of actors in shifting and overlapping networks with an increased attention to normative and cultural-cognitive forces at work (Katzenstein, Keohane, and Krasner 1998; Widmaier, Blyth, and Seabrooke 2007).
Meyer and colleagues have pursued a broad agenda of research that emphasizes the role of cultural forces at work at the transnational level. In a series of studies, they have developed and tested a theory of the processes by which rational models of organization and organizing have emerged during the past several centuries—since the Enlightenment— giving rise to a collection of nation-states and a limited range of organi- zational forms that are, despite enormous disparities in technical and economic development among societies, remarkably similar in their formal structures and modes of operation (Drori, Meyer, and Hwang 2006; Meyer, Boli, Thomas, and Ramirez 1997; Thomas, Meyer, Ramirez, and Boli 1987). Institutions are viewed as “cultural rules giving collective meaning and value to particular entities and activities, integrating them into the larger schemes” (Meyer, Boli, and Thomas 1987: 13). In contrast to the realist account of organizations as distinctive entities designed to efficiently pursue specific objectives, the approach views nation-states and organizations as being constituted by the wider environment. Orga- nization is not just about productivity and exchange, but serves to signal rationality and legitimacy. A wide-ranging series of empirical studies document the worldwide diffusion of models for organizing—ranging from the structuring of nation-states, to educational systems, to proce- dures for protecting the natural environment, advancing women’s rights, husbanding human resources, and ensuring transparency of gov- erning units (Berkovitz 1999; Drori et al. 2006; Frank, Hironaka, and Schofer 2000; Meyer et al. 1997).
A contrasting approach is associated with the work of Djelic and colleagues, who focus attention on the recent emergence of a wide range of governance mechanisms to manage economic and political activities at the international level. In their view, recent developments in globalization are not “only about adaptation and change of national institutions. [They are] also about institution building in the transna- tional arena—a space traditionally and typically pictured and described as anomic and adversarial” (Djelic and Quack 2003c: 3). These scholars have examined institution-building in such varied realms as the regu- lation of competition, central banking, control of carbon emissions, and business education (Djelic and Quack 2003b; Djelic and Sahlin- Andersson 2006). The scenario developed is not one of increasing global uniformity—the dominance of a single model—but a more variegated “multilevel and multilayered historical process” marked by “competing and conflicting actors and logics” (Djelic and Quack 2003a: 303) involving both negotiation and the emergence of novel forms. They emphasize that, at the transnational level at the current time, we are witnessing a period of vibrant institution-building.
2. Societal-Level Studies
An early influential study of institution-building at the societal level is the historical account provided by North and Thomas (1973) of “the rise of the Western world.” These economic historians argued that economic growth does not occur unless there are mechanisms that closely align social and private rates of return. Individuals are moti- vated to undertake socially desirable activities only if they provide private benefits that exceed private costs. This situation, in turn, requires that appropriate property rights be established and enforced. The need for such regulatory institutions, however, does not guarantee their development. Creating such structures is costly and challenging politically. Since the rise of the nation-state, governments have assumed responsibility for enforcing property rights. However, the interests and fiscal needs of rulers may encourage them to establish and enforce agreements that do not promote economic growth. Hence, “we have no guarantee that productive institutional arrangements will emerge” (North and Thomas 1973: 8).
North and Thomas (1973) review historical evidence from the high Middle Ages to the beginning of the 18th century, noting developments in the political economy of Europe that advanced or depressed eco- nomic growth. They examined a number of cases and drew on a vari- ety of historical materials, but their most detailed discussion contrasted political and economic developments during the period 1500 to 1700 in England, the Netherlands, Spain, and France. They concluded that, by the beginning of the 18th century, “a structure of property rights had developed in the Netherlands and England which provided the incen- tives necessary for sustained growth” (p. 157). In England, for example, Tudor kings became dependent on political support from the House of Commons, increasingly dominated by the rising merchant class, and political compromises pressed on the rulers resulted in expanded mar- kets, both internal and colonial. By contrast, French kings developed methods of taxation that did not require them to extend markets, eliminate hereditary land tenure, or challenge the power of guilds and nobility in order to secure adequate revenue to support army and court. The interests of the fledgling bourgeoisie were not recognized or protected. Such recognition had to await a long-delayed and tempestu- ous revolution.
Although their particular interpretation of history has not gone unchallenged (see, e.g., Wallerstein 1979), North and Thomas provide a careful examination of ruling societal elites located in contrasting historical conditions who made choices that gave rise to markedly dif- ferent institutional arrangements regulating economic activity with important consequences for each society.
3. Field-Level Studies
Dezalay and Garth (1996) provide a detailed historical account of the creation of an institutional framework at the international level for resolving disputes between businesses in different countries: transna- tional commercial arbitration rules and practice. Although their scope is international, they focused on the creation of a specific organiza- tional field. Their history depicts the construction of an “international legal field”—the gradual and conflictual development of an arena with defined boundaries, central players, and accepted ground rules for dispute resolution.
The focus of their history is the transformation that began to occur in the 1970s as an elite “club” of “grand old men” centered in Paris confronted increased demand for arbitration services fostered by bur- geoning international trade and globalization. This demand brought into the arena a new generation of “technocrats” housed in U.S. corpo- rate law firms. The delicate transition was negotiated by the Interna- tional Chamber of Commerce, which succeeded in transferring the legitimacy of the former elite to an expanding set of arbitrators in a classic instance of increased bureaucratization and rationalization of the field. Personal charisma was gradually replaced by routinized, impersonal, specialized expertise. Maintaining legitimacy was essen- tial for the continued success of arbitration if it was “to provide a basis to govern matters that involve powerful economic and political enti- ties” (Dezalay and Garth 1996: 33). Dezalay and Garth provide a finely nuanced account of “the contests through which the field and the mar- kets of arbitration are constituted” (p. 41). Although all participants are depicted as attempting to pursue their respective interests, the tale told is not one of rational design, but of improvisation, contestation, and compromise resulting in an eventual institutional settlement.
DiMaggio’s (1991) study of the efforts by professionals to create the cultural conditions that would support the development and maintenance of art museums during the late 19th century in America is also cast at the organization field level, but limited to a single soci- ety. In his historical account, DiMaggio gave primary attention to cultural-cognitive aspects of the professional project: the creation of distinctions between high and low forms of art, and the creation and selection among cultural models for constituting art museums as dis- tinctive types of organizations. Struggles are depicted among con- tending professional factions debating the merits of a “curator” ver- sus an “educational” model of museum, and between the interests of new types of professionals—curators, art historians, and acquisition experts—and those of trustees and museum managers. Significantly, these struggles took place primarily at the field level, involving the collective efforts of professionals pursuing a common project, rather than within individual museum organizations. Philanthropic founda- tions, specifically the Carnegie Corporation, are shown to play a pivotal role as they sided with the interests of the new museum pro- fessionals. This study underlines DiMaggio’s contention that agency and interests are more apparent—more amenable to study—during the creation of a new institutional field in contrast to the routine operation of an existing field.2
Another informative study of contending models for organizing at the field level is provided by Rao’s (1998) account of the emergence of consumer protection organizations in the United States during the early part of the 20th century. The Consumers’ Union (CU) embodied the model of watchdog as radical critic, overseeing both consumer interests and worker rights. By contrast, Consumer Research (CR) advanced the model of watchdog as impartial evaluator, limiting their purview to consumer goods. Pressure from conservative media and political bodies forced CU to abandon its more radical agenda and, like CR, operate as a “rational” scientific agency employing impartial test- ing methods to evaluate consumer products. Rao emphasizes that the institutionalization of such consumer interest agencies could not take place until a settlement had been reached between these competing institution-building projects.
Additional field-level studies of institutional construction and change are discussed in Chapter 8 (see also Thornton, Ocasio, and Lounsbury 2012; Wooten and Hoffman 2008).
4. Population-Level Studies
At the population level, institutional construction concerns pri- marily the creation of new organizational forms. In his now classic discussion of organizations and social structure, Stinchcombe (1965) identified organizational forms as an important topic of study and pointed out that organizational foundlings of the same type tend to be concentrated in particular historical periods. Moreover, because new organizations must rely on existing ideas, technologies, and social routines, organizations take on a similar character—are imprinted by their institutional environment—reflecting the histori- cal conditions of their origin. And, most important, although these differences exhibit the somewhat arbitrary conditions of their birth, they tend to persist over time. Organization forms exhibit substantial inertia. Stinchcombe assembled data on differences in the labor force composition of varying industries to illustrate this effect, demonstrat- ing that industries founded in different periods tended to exhibit dif- fering labor force characteristics and that these differences were maintained over long time periods.
These insights provided an important touchstone for both popula- tion ecologists and institutional theorists. Ecologists are necessarily con- cerned with identifying meaningful organizational forms. After all, it is difficult to enumerate organizational populations if their identification is problematic. Theorists like McKelvey (1982) proposed the creation of a broad general taxonomy, but most ecological scholars utilize a more pragmatic approach that focuses on identifying similarities in key prop- erties, such as stated goals, structural features, and core technologies in a collection of organizations (see Hannan and Freeman 1989).
Institutionalists Greenwood and Hinings (1993: 1055) stress the cognitive dimension in their attempt to identify distinctive organiza- tional forms or archetypes, which they define as “a set of structures and systems that consistently embodies a single interpretive scheme.” Although they emphasize the importance of environmental niches associated with distinctive patterns of resource usage, ecologists also increasingly recognize that organization forms and the boundaries between them are institutionally defined and constructed. While the differences involved may have their origins in technologies, the char- acteristics of clients served, or the resources consumed, particular arrangements come to be seen as the “natural” way to carry out certain types of activities. Institutionalizing processes ensue, transforming arbitrary differences into differences with real social consequences. In this sense, nominal classifications become real classifications. They become real in their consequences when they serve as bases for successful collective action, when powerful actors use them in defining rights and access to resources, and when members of the general population use them in organizing their social worlds. Thus, the clarity of a set of boundaries is not a permanent property of a set of classifications. Rather, the realism of distinction among forms depends on the degree of institutional- ization that has occurred. (Hannan and Freeman 1989: 57)
And in their most recent formulation, Hannan and colleagues pro- pose that organization form is a taken-for-granted category, shared by internal and external audiences, specifying the characteristics of appro- priate actors and activities. Organizations violating these rules are penalized by their audiences, experiencing an “illegitimacy discount” (Hannan, Pólos, and Carroll 2007; see also Rao and Kenney 2008; Zuckerman 1999).
In the following chapter, we consider the way in which ecologists measure degree of institutionalization.
Mohr and Duquenne (1997) illustrate the application of such argu- ments in their study of the emergence of differentiated populations of welfare organizations in New York City during 1888 to 1917 (see also Mohr 1994). They suggest that differentiation in these populations occurred along three axes: the sorts of statuses recognized and the merit they were accorded, the kinds of social needs or problems identi- fied, and the kinds of solution repertoires recognized. Client differen- tiation was driven by power struggles surrounding these three socially constructed dimensions. The subtypes of welfare organizations pro- vided the “containers” within which these dimensions were poured and provided the frameworks around which providers and clients negotiated and struggled.
As another example of a study of institutional construction at the population level, Suchman (1995a; Suchman, Steward, and Westfall 2001) combined both historical and analytic approaches in his study of the creation of organizational forms for semiconductor firms in California’s Silicon Valley. Creating a new organization requires not only resources, but also ideas or models on how to organize. Conven- tional histories celebrate the role of Stanford University engineers in providing the designs and early material resources for start-up compa- nies (see, e.g., Saxenian 1994). While acknowledging this contribution, Suchman and colleagues laid the groundwork for a “genetics of orga- nization” that examines the flows of both operational resources and “constitutive information”:
Just as mating patterns shape organic populations by structuring the flow of constitutive genetic blueprints, institutional patterns— definitions, typologies, accounts of relevance, theories of causation, and so on—shape organizational populations by structuring the flow of constitutive cognitive models. Cognitive models carry the scripts for organizational competences, and in structuring the trans- mission of such models, cognitive institutions function as organiza- tional reproduction mechanisms. (Suchman et al. 2001: 358–359)
They proceed to outline an organizational genetics, concerned with the development and preservation of distinctive species or forms, to supplement organizational ecology, which focuses on competition among existing species or types of organizations. In established orga- nization fields, most new organizations are “reproducer rather than innovative” forms because they largely copy routines and competences from existing organizations (Aldrich and Ruef 2006: 67). They follow what Suchman and colleagues (2001: 359) term a “filiation” mode of reproduction: Here “new organizations draw competences directly from specific existing organizations that embody those competences themselves.” But when fields are in their early stages of development, organizations cannot simply copy successful recipes. Under such circumstances, Suchman suggests, a process of “compilation” may be employed, whereby “information intermediaries” such as consultants or lawyers observe existing, relatively heterogeneous practices and attempt to distil a core set of organizing principles. In their historical account, Suchman and Cahill (1996) described how lawyers and ven- ture capitalists in Silicon Valley functioned as “dealmakers,” linking clients with various transactional partners and as “counselors,” formu- lating and disseminating standardized solutions to recurrent problems. Shifting to a quantitative approach, Suchman (1995a; Suchman et al.
2001) analyzed data on 108 venture-capital financing contracts from two Silicon Valley venture-capital funds. Such contracts bring together the venture capitalists, lawyers, and entrepreneurs in the crucial founding event, constituting the structure of relations among these parties as they jointly form the start-up company. The contracts were coded along numerous dimensions, and these scores were then used to calculate mea- sures of contractual standardization as an indicator of increasing institu- tionalization. Suchman’s analysis reveals that standardization was strongly correlated to both date of filing and location of the law firm that drafted the contract. In general, standardization of contracts was greater the later in the time period they were filed and the closer the location of the law firm drafting the contract was to the core of Silicon Valley.
5. Organization-Level Studies
Following the lead of Coase (1937), Oliver Williamson addressed a question often overlooked by social scientists: Why do firms exist at all? Why are not all economic transactions mediated by markets? As discussed in Chapter 2, Williamson (1975; 1994), embracing (bound- edly) rational choice assumptions, proposed that economic agents select or devise frameworks in order to minimize transaction costs. When exchanges are simple and easy to monitor, markets will be pre- ferred. However, if exchanges are uncertain or partners cannot be trusted, then more complex “governance systems”—namely, organiza- tional frameworks of rules and authoritative controls—although costly to construct, will be preferred.
Walker and Weber (1984) tested Williamson’s arguments that transactions involving higher uncertainty and greater asset specificity (specialized skills or machinery)—more likely to increase vulnerability vis-à-vis partners—would be more likely to be brought within the firm rather than purchased from outside. That is, organizational designers will elect to have such tasks governed by the firm’s hierarchy rather than by the market. Their study of 60 “make or buy” decisions within a division of a large automobile company found results generally con- sistent with these predictions, although, unexpectedly, the researchers found that comparative production costs had a larger impact on these decisions than did transaction costs.3
Williamson’s framework extends beyond the simple choice of mar- kets versus hierarchies to consider various types of organizational structure. Following Chandler’s (1962) early insights and historical research, Williamson (1975) argued that firms adopting a multidivi- sional (M-form) structure would be more capable of separating strategic from operational decision making, allowing them to better allocate capi- tal among divisions and monitor divisional performance. To test these arguments, Armour and Teece (1978) studied a sample of diversified firms in the petroleum industry and found that those firms adopting the M-form structure performed better financially. Teece (1981) extended the test to evaluate the performance of pairs of firms matched by size and product line in 20 industries. The performance of the firm first adopting the M-form (the lead firm) was compared with that of the matched firm for two time periods. Again, the results confirmed the hypotheses.4
Like Williamson, Moe (1990a) focuses on the level of the individual organization. He has been particularly inventive in applying rational choice perspectives to the design of public agencies. Adopting the perspective of institutional economists, Moe views organizations primarily as governance systems, emphasizing regulatory elements. Moe pointed out that governmental structures differ from those in the private sector in that, unlike the world of voluntary exchange, “people can be forced to [give up resources involuntarily] by whoever controls public authority” (p. 221). The legitimate use of coercive power distin- guishes public from private authorities. The problem confronted by political actors in democratic systems is that, although they can use their power to design institutional arrangements that serve their inter- ests, the possibility exists that opposing parties will come to power and employ the same instruments to serve their own ends. To deal with this problem of the uncertainty of political control, Moe argued, public authorities often restrict the discretion of agencies and envelop them in detailed rules and procedures.
Obviously, this is not a formula for creating effective organiza- tions. In the interests of political protection, agencies are knowingly burdened with cumbersome, complicated, technically inappro- priate structures that undermine their capacity to perform their jobs well. Nor, obviously, is this a formula for effective hierarchical control by democratic superiors. Insulationist devices are called for precisely because those who create public bureaucracy do not want a truly effective structure of democratic control. (Moe 1990a: 228; italics in original)
These pathologies are particularly likely to develop in political systems based on the separation of power, such as the United States, compared to parliamentary systems, such as the United Kingdom.
The “politics of structural design” become even more perverse in situations where the Congress and the White House are controlled by opposing parties. Moe (1989) provided a detailed historical account of the creation of the Consumer Product Safety Commission (CPSC), an agency created when Richard Nixon, a Republican, was president, but was compelled to work with a Democratic Congress. Consumer inter- ests, allied with Congress, were successful in their struggle to create an independent agency, separate from cabinet departments that were viewed as overly conservative. Strict procedural rules were imposed to ensure that the agency would attend to consumer interests. However, business interests, with the support of the administration, made sure that ample provision was made for their input and review of all pend- ing decisions, and that enforcement powers were not vested in the Commission, but in an independent agency, the Justice Department. The initial design of the agency reflected the contending interests of the parties, and subsequent modifications were governed by the shifting political power of consumer versus business interests.
Philip Selznick, like Moe, also examined the design of a public agency. However, in his well-known account of the evolution of the Tennessee Valley Authority (TVA), Selznick (1949) eschewed a rational choice framework, as he depicted processes that undermine rational design. He provided a historical account of the development over time of a distinctive ideology and set of normative commitments on the part of TVA officials. As I noted in reviewing Selznick’s views in Chapter 2, his approach describes how the original structure and goals of this innovative government corporation were transformed over time by the commitments of its participants to the means of action. In Selznick’s (1957: 17) work, to institutionalize is “to infuse with value beyond the technical requirements of the task at hand” in that intrinsic worth is accorded to a structure or process that originally possessed only instru- mental value. Although Selznick emphasized normative beliefs and values in his analysis, he also attended to the importance of cognitive features of organizations. His discussion of the role played by the grassroots ideology in framing decisions and garnering support from important constituencies is central to his argument (see Selznick 1996). Selznick’s approach focuses on internal relations, especially informal structures rather than on formal structures, and on the immediate environ- ment of the organization—the “organization set”—rather than on more general cultural rules or characteristics of the wider organizational field (see DiMaggio and Powell 1991). The carriers of institutionalized values are relational structures, in particular, informal structures and cooptative relations linking the organization with salient external actors, both indi- vidual and collective.5 Selznick’s argument stresses the importance of power processes—the vesting of interests in informal structures and the cooptation of external groups that acquire internal power in return for their support. His analysis of the TVA examines the ways in which par- ticular constituencies, such as the agricultural interests, on whom the organization was dependent, were able to modify agency programs in ways that compromised its conservation agenda. Selznick views this as a failure of “institutional leadership.” Founders are seen to abandon their mission for the sake of protecting the survival of their organization.
Selznick’s interest in organizations that become defined by their commitments to distinctive values has been pursued by a new genera- tion of researchers interested in “organizational identity.” Defined as a commitment to values that are “central, enduring, and distinctive,” organizational identity provides participants with a core set of norma- tive elements around which to craft their narratives and sense-making activities (see Albert and Whetten 1985; Whetten and Godfrey 1999).
Diane Vaughn (1996) wove together normative commitment and power arguments to account for the continued use of a flawed design by Morton Thiokol engineers and the fateful decision by NASA offi- cials to launch the Challenger missile, which exploded shortly after takeoff, killing all crew members aboard. Her richly detailed historical account of the organizational routines—both technical and decision making—leading up to the disaster depicted the development of a culture within which “signals of potential danger” were “repeatedly normalized by managers and engineers alike” (p. xiii). Although pro- duction pressures played an important role, these pressures “became institutionalized and thus a taken-for-granted aspect of the worldview that all participants brought to NASA decision-making venues” (p. xiv; italics in original).
6. Interpersonal- and Intraorganization-Level Studies
Employing a game-theoretic approach, Axelrod (1984) used the prisoner’s dilemma situation to examine the conditions under which individuals who pursue their own self-interest in the absence of a cen- tral authority will evolve norms of cooperation. The prisoner’s dilemma involves a situation in which two players make one of two choices: cooperation (c) or noncooperation (n). The payoff matrix is such that if both players opt for c, then both receive an intermediate reward; if both select n, they receive a low reward; but if one player selects c when the other selects n, the former (sucker) receives no reward and the latter (exploiter) receives a high reward. Players are not allowed to exchange any type of information other than their choices, and the game is played over a number of trials. The challenge for each player is to provide incentives and encourage the formation of norms to induce his or her partner to cooperate. However, the knowledge of each player is limited, and any normative structure that develops must be fashioned incre- mentally, based on inferences from previous interactions.
In a novel design, Axelrod (1984) invited other game theorists from many disciplines to compete in a computer tournament to select the best game strategy by submitting a program that embodies rules to select the cooperative or noncooperative choice on each move. Such a program provides a complete process description of the sequence of decisions during the course of the encounter. Of the 14 strategies sub- mitted, the most successful was the “TIT FOR TAT” decision rule: a strategy that starts with a cooperative choice and thereafter selects whatever the other player did on the previous move. This simple strat- egy provided the best payoff to the player adopting it under a wide range of simulated conditions. Axelrod summarized its virtues:
What accounts for TIT FOR TAT’s robust success is its combination of being nice, retaliatory, forgiving, and clear. Its niceness [never initiating noncooperation] prevents it from getting into unneces- sary trouble. Its retaliation discourages the other side from persist- ing whenever defection is tried. Its forgiveness helps restore mutual cooperation. And its clarity makes it intelligible to the other player, thereby eliciting long-term cooperation. (p. 54)
Although it may be argued that the prisoner’s dilemma is “just a game,” it encapsulates an important dilemma built into many real- world situations, from the school yard to international diplomacy. It is to cope with such situations that security regimes and similar types of institutions develop (see Krasner 1983; Scharpf 1997). A particularly important element of the conditions supporting the rise of stable coop- erative norms is that “the future must have a sufficiently large shadow” (Axelrod 1984: 174). The anticipation of future interaction provides an important stimulus to evoke norms of reciprocity. Indeed, such norms are argued to undergird the stability of much ongoing economic and social behavior, making it less necessary for parties to resort to such expensive alternative regulatory structures as the legal system and police force (see Macaulay 1963).
Elsbach (2002: 37) defines intraorganizational institutions as “taken-for-granted beliefs that arise within and across organizational groups and delimit acceptable and normative behavior for members of those groups.” This definition encompasses a wide range of organiza- tional research beginning during the 1930s and variously labeled stud- ies of work group behavior and subgroup identities, human relations, organizational culture, organizational identity, and sense-making pro- cesses (see, e.g., Dutton and Dukerrich 1991; Frost, Moore, Louis, Lundberg, and Martin 1985; Martin 1992; Roethlisberger and Dickson 1939; Roy 1952; Schein 1985; Weick 1995). Earlier studies tended to emphasize the normative facets of institution-building, whereas later approaches have given more attention to shared schemas and identities—cultural-cognitive elements.
7. Comparative Comments
The studies briefly summarized here differ in a number of impor- tant respects. They are arranged by level of analysis, but it is important to emphasize that level is defined by the nature of the dependent vari- able: the level of the unit whose structure or behavior is to be explained. In many of the studies reviewed, multilevel processes are shown to be involved with, for example, societal structures affected by transna- tional phenomena or, alternatively, field-level processes being influ- enced by the actions of organizations embedded within the field. We believe that a hallmark of the more sophisticated institutional approaches is their openness to such multilevel causal processes.
The studies reviewed also vary in terms of the assumptions made about rationality of actors and salience of institutional elements. Among the various studies reviewed, Moe and Williamson assume a higher level of rational choice exercised by actors in designing institu- tional arrangements. In these studies, actors are assumed to be pursu- ing their individual interests armed with substantial knowledge of alternatives and their relation to consequences. Hence, the critical question is: When and why is it in an actor’s self-interest to construct and maintain institutional structures that will govern not only others’, but one’s own, behavior? Other theorists embrace a less restrictive conception of rationality, assuming that while individuals attempt to pursue their interests, they do so with imperfect knowledge and intel- ligence. Errors in judgment occur and unintended consequences result. Rather than conceiving of institutions as “sets of predesigned rules,” these theorists are more apt to see them as “unplanned and unintended regularities (social conventions) that emerge ‘organically’” (Schotter 1986: 118). Among the studies reviewed, North and Thomas and Axelrod best exemplify these assumptions.
Although analysts in all of the studies presume that participants have interests and examine the processes by which contending inter- ests are resolved, researchers such as Dezalay and Garth, DiMaggio, Mohr, Selznick, and Suchman view such interests not simply as preex- isting, but as being constructed in the course of the interaction and negotiation processes.
With respect to institutional elements, North and Thomas, Moe, and Williamson place primary emphasis on regulatory structures. Axelrod, Dezalay and Garth, Selznick, and Vaughn attend largely to normative elements, although the latter three also consider cultural- cognitive elements. DiMaggio, Mohr and Duquenne, and Suchman highlight the role of cultural-cognitive processes of institutional creation.
Source: Scott Richard (2013), Institutions and Organizations: Ideas, Interests, and Identities, SAGE Publications, Inc; Fourth edition.