Cognitive and Cultural Embeddedness: Combining Institutional Economics and Economic Sociology
Dequech, David, Journal of Economic Issues
A minority of economists and a relatively larger contingent of scholars in other social sciences have attempted to show that the neoclassical theory of economic behavior has serious limitations and to develop alternative approaches. In this effort, both non-neoclassical economists and non-economists have enriched their work with research done outside their original disciplines, but there is room for much more interdisciplinary cooperation.
This paper is part of a broader interdisciplinary discussion of institutions, cognition, and economic behavior begun in Dequech 2003a. The present paper examines what has been called, in recent economic sociology, the cognitive and cultural embeddedness of economic behavior, relating this to discussions of institutions in economics. It considers not only the so-called new economic sociology but also part of the new institutionalism in sociology, an approach marked by its emphasis on cultural-cognitive issues, according tow. Richard Scott (2001, 57). Additionally, the paper is intended to facilitate communication among institutional economists and economic sociologists, which requires discussing some key concepts and how they might be translated into a different language and related to each other. Given this journal's readership, a more specific aim is to make institutional economists more aware of interesting lines of work in economic sociology.
The paper is organized as follows. The first section discusses the notion of embeddedness, which is a core concept for many contemporary economic sociologists. Different varieties of embeddedness are identified. The second section examines the notion of culture and the influence of culture on economic behavior and then relates this to the economists' treatment of institutions. The third section shows the strong intertwinement of cognitive and cultural embeddedness. Finally, the fourth section highlights one among other points concerning the relation between cognition, culture, and economic behavior: the different ways in which culture and cognition are constitutive of economic agents.
Kinds of Embeddedness of Economic Action
The notion of embeddedness may be traced back to Karl Polanyi and Clifford Geertz. It was revitalized by Mark Granovetter (1985) and has since then become a central concept in the new economic sociology. Granovetrer's influential article focuses on the embeddedness of economic action "in networks of interpersonal relations" (504). Granovetter (486) used the expression "structural embeddedness" to indicate that not only the personal relations (the "relational" aspect of embeddedness) matter but also the "the structure of the overall network of relations" (1990, 98-99).
In Sharon Zukin and Paul DiMaggio's (1990) wider conception, four kinds of embeddedness of economic action are identified: cognitive, cultural, structural, and political embeddedness. Cognitive embedded ness refers to "the ways in which the structured regularities of mental processes limit the exercise of economic reasoning." This notion calls attention to "the limited ability of both human and corporate actors" (15-16) to employ the kind of rationality required by neoclassical economics. Cultural embeddedness refers to "the role of shared collective understandings in shaping economic strategies and goals" (17). Structural embeddedness is defined, following Granovetter, as "the contextualization of economic exchange in patterns of ongoing interpersonal relations" (18). Finally, by political embeddedness they mean "the manner in which economic institutions and decisions are shaped by a struggle for power that involves economic actors and nonmarket institutions," such as the legal framework of the state (20).
The largest part of the research in economic sociology since its revival has studied embeddedness by focusing on networks, so much so that this has become known to many people as the embeddedness perspective (see, for example, the surveys in Swedberg 1997, 162, 1. …