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New Institutionalism

In the 1980s, new institutionalism developed in reaction to the behavioral perspectives that were influential during the 1960s and 1970s. Stressing structure over agency, new institutionalists show how values, norms, ideas, rules, routines, and roles that are derived from social contexts guide or channel behavior.

As new institutionalists use the term, institutions are symbolic and behavioral systems containing rules that are linked to regulatory mechanisms that impact individuals by stimulating certain roles, routines, and calculations. New institutionalists unpack symbolic and behavioral systems, spell out their rules, analyze their relationship to regulatory mechanisms, and, ultimately, demonstrate how they make human behavior regular and predictable.

New institutionalists come from disciplinary backgrounds in sociology, economics, and political science, and differ in what they emphasize. “Old” institutionalists focus on values and norms. New sociological institutionalists emphasize cognitive and symbolic systems of meaning, particularly how these give rise to certain identities, roles, and routines. New economic institutionalists emphasize rules and enforcement systems, particularly how these affect individuals' cost-benefit calculations. Historical institutionalists emphasize the macrolevel, national consequences of institutions over time and are primarily interested in comparing national political, social, and economic systems.

Old Institutionalism

The original organizational institutionalists saw institutions as a means of control and coordination. For them, institutions were structures infused with value and valued for their own sake beyond their usefulness in reaching other goals. As an organization becomes institutionalized, it changes from an expendable tool into a valued source of personal satisfaction. Institutions, distinct from normal organizations, operate smoothly without relying on coercion or appealing to utilitarian individual self-interest to coordinate individuals' behavior. Because individuals value the organization for its own sake, they obey organizational norms voluntarily and often even without consciously deciding to do so.

Institutionalists argue that leaders consciously create organizational norms and values to achieve organizational ends. Institutionalization is described as a purposeful process undertaken by organizational elites to motivate the key personnel to internalize chosen social values. The Forest Service leadership overcame powerful centrifugal forces—a geographically scattered, diffuse, and independent workforce—by infusing individual forest rangers with the Forest Service's mission of science in the public interest. The Forest Service's leadership achieves this value infusion in several ways: selective recruitment, extensive training, closed promotion practices, and regular rotation to prevent rangers from “marrying the natives.” The Forest Service became an institution itself, to be valued and served.

New Institutional Economics

In the late 1980s, some economists that were dissatisfied with the traditional liberal economic assumption that markets are naturally efficient began to examine how social rules and legal constraints aided markets and exchange. Accepting the fundamental economic assumption that individuals will engage in self-interested behavior, or act to maximize their preferences, economists nevertheless argue that markets are not naturally efficient because opportunistic behavior, asymmetries of information, and enforcement problems lead to transaction costs. In other words, in a truly free market, it is too easy to cheat, which makes truly free markets too inefficient to work. Any transaction involves risk—that the service will not be provided as specified or that the product will not be as promised. The more this risk increases, the more costly enforcement mechanisms become and the less likely exchange becomes. The solution is to create laws, rules, norms, and other constraints on individuals' behavior to prevent cheating and thus reduce risk. For new institutional economists, then, institutions are absolutely necessary for efficient economic exchange and markets.

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