There are many people that I would like to thank for their help in writing this book. Rules of property division, in the form of either informal convention or formal law, also take various forms. Finally, of office is also characteristic of all public. Two cases need to be identified. D All of the above E None of the above Which of the following acts might, by some definitions, be considered examples of terrorism? Externally enforced institutional rules add another mechanism to ensure compliance: the threat of sanction from a third-party enforcer. Social institutions can affect norm-generated behavior by creating and maintaining these social norms. In the case of the modern firm these distributive questions have been resolved within the institutional framework of bargaining between labor and management.
Until recently, governments were able to directly enforce the rules and regulations based on their political and legal philosophies. Concomitant with the rise of collective economic activity is the increasing complexity of distributive questions: How are the gains from collective action to be divided? Democratic governments derive their power from the people of the country, either by direct referendum called a direct democracy or by means of elected representatives of the people a representative democracy. If an institutional equilibrium exists - and by this I mean that the institution structures the actors' choices in regard to achieving an equilibrium outcome - then the actors have a rational basis for formulating expectations about the actions of others. The former explanation would entail a general sanction against rule violations, while the latter explanation would entail a specific sanction against noncompliance with particular institutional rules. It is by analyzing these resource asymmetries that we obtain an important measure of asymmetries in power. Why do they take one form in one society and quite a different form in another? This possibility of tension for institutional change 13 As noted in an earlier discussion of the classic texts, Smith emphasized a third factor that can inhibit the use of a strategic power advantage: market competition. Put simply, without some means of resolving this uncertainty, strategic action is impossible, because the actors are unable to assess rationally the outcomes associated with their choice of strategies.
But actors are often confronted by situations characterized by an interdependence between other actors and themselves. Without these fixed procedures, the process of political decision making would be more difficult and more costly. Instead, most countries have a combination of both. These situations are characterized by the existence of more than one possible outcome that, if arrived at, would constitute an equilibrium for the actors in the interaction. This is the problem of strategic interaction in a world without institutions. Third, the rational-choice account of social institutions does not explain suboptimality and inefficiency March and Olsen, 1989: 38ff.
Two theorists reflect this emphasis on distributional questions: Karl Marx and Max Weber. Even when he thought my arguments especially those that question his own work were half-baked, he encouraged me to work them out and get them straight. The continuing focus of these critics on the assumption of individual rationality suggests that there is something inherent in the reliance on this assumption that prevents the incorporation of these features. The role of institutions 4 For a detailed analysis of the alternative theories of social change in Marx's writings, see Elster, 1985. I have postponed my investigation of the possibilities of the stability of self-enforcing compliance through repeated interactions until Chapters 5 and 6. Because rulers may have interests that conflict with those of their subjects and because they choose rules that maximize their own interests, they may produce property rights schemes that do not maximize the collective welfare. How this revolution would come about remained unanswered by the theory of historical materialism.
Second, when institutional rules affect the distribution of the benefits of social outcomes, it is likely that some actors will want to change these institutional arrangements. But this is a judgment that would be made by some external observer, for actions in accordance with norms are not the 10 See Elster, 1989a, for an extended discussion of the differences between these two theories of action. This focus allows me to address criticisms of the strategic approach to social institutions that claim that the approach cannot adequately deal with such issues as community, history, and meaning. To see the context in which such an answer can be derived, we need to refer back to the conception of rational decision making sketched in Chapter 1. Both the farmer and the buyer benefit from going to the square on the same day, but without more information the players will not know how to maximize their payoffs.
Once again, for each player the value of the choices to be made depends on the other player's decision. To the extent that the members of a society are able to participate and benefit in these economic exchanges, established rules of property accrue to the benefit of the society as a whole. Accounts elaborating the issues associated with these problems include those by Hardin 1982 and Taylor 1987. Sufficient organizing success such that actors perceive some reasonable chance of further success 5. Other theories do explicitly adopt such an explanatory strategy.
He demonstrates that it is impossible to design an incentive system based on self-interest that will effectively discipline all subordinates and superiors and obviate or overcome the roles of political conflict, collective action, and leadership in an organization. Then the social-selection mechanism repeats itself through future competition. Although it is important to acknowledge a variance in the extent to which institutions require some external authority to ensure their enforcement, the dichotomy is a false one. First, it should explain the mechanism by which an institution initially develops. Criticism of the assumption of stable preferences, however, is widespread, frequent, and often appropriate. Consider the laws against simple theft: The logic of the decision to steal can be modeled as a Prisoner's Dilemma game of the individual against society Table 3. Questions such as these are the main subject of this book.
The common characteristic of these rules is that they have established a stable criterion on which social actors can anticipate the future and act accordingly. To make such an assessment we must have a criterion of aggregate utility that remains consistent both before and after the institutional change. Whereas self-enforcing institutions rely mainly on the strategic acuity of social actors, externally enforced institutions introduce additional actors as enforcers who can alter the nature of social interactions. Regulation of transportation has been another major activity in most Western political systems, beginning with the railroads. Additionally, some governments will manage the exchange rate at a high level to create an import disincentive.
This also implies that the spontaneous order does not systematically favor any particular segment of the community. A second common feature is the or specialization within the organization. He must make a decision based on what he thinks the buyer will choose to do. Here we might expect two types of behavior: either experimentation with different institutional forms in an effort to obtain more information about institutional effects or the establishment of rules that can easily be changed. Social life is replete with instances in which my rewards interact with the rewards of others. In nearly all political systems, certain functions are recognized as primarily , or belonging to the government, although some aspects of these services may be handled by the private sector. Institutions structure social interactions and ensure compliance by a combination of 1 information provided about the choices of other actors and 2 the threat of sanctions imposed by other actors in the event of noncompliance.
Bargaining failure: coordination, bargaining, and contracts-- 3. Weber's theory is a classic account of the systematic adaptation of behavior to changes in the economic and social environment. This question can be addressed, as I shall suggest, only by considering the relationship between institutional rules and social action. Although both prefer coordination on one of the two equilibria, as opposed to the nonequilibrium alternatives, they disagree on which outcome should be achieved. From the simplest to the most complex, we produce them while conducting all aspects of our social life. From a critical perspective, an understanding of institutional change allows us to determine whether our existing institutions further those goals by which they are usually justified. In organization theory a schism has developed between the traditional organizational behavior literature, based in psychology, sociology and political science, and the more analytically rigorous field of organizational economics.