Institutions, Intergroup Competition, and the Evolution of Hotel Populations around Niagara Falls

Article excerpt

The simple but powerful idea that institutions form the constraints that shape human interaction has had a dramatic impact on economics and political science and is gaining influence in sociology (Eggertsson, 1990; Alt and Shepsle, 1990; Brinton and Nee, 1996). Institutions, in this view, are formal and informal "rules of the game" that, with associated enforcement mechanisms, provide the structure for economic action (North, 1990:3). In this paper, we examine the coevolution of a set of institutions in response to a collective action problem and two populations of organizations. The institutions are rules that developed in response to a tragedy of the commons at Niagara Falls resulting from overexploitation, and the organizations are the hotel populations in Niagara Falls, New York, and Niagara Falls, Ontario, which were leaders in the effort to establish these institutions at Niagara Falls. We first examine the historical development of tourism in the two hotel communities at Niagara Falls to explain how and why hotels responded to collective action problems. We then present dynamic analysis of hotel failures and foundings to show how institutional structures and interpopulation competition affected population dynamics. This study, therefore, attempted to address two research questions: How do collective action problems among competitors lead to the development of institutional solutions, and how do interpopulation rivalry and institutional structure affect failure and founding rates?

This study contributes to both organizational theory and the new institutional economics. Organizations are the principal actors in institutional economics, but the theory suffers from a general inattention to the realities of organizational action. The recognition in institutional economics of organizations as the agents of institutional change is a critical insight, but the characterization of organizational agency has been too simplistic. North (1990) referred to organizations as "players" in the game defined by institutions, and the treatment of organizations as unitary, rational actors is common in the literature. As we show in our historical analysis, the contributions of organizations to the creation and change of institutions can depend on factors that do not fit neatly into a rational model of collective action. Further, although North (1990: 5) claimed that institutions fundamentally influence organizational evolution, this idea has not been tested in institutional economics. Organizational theory has sophisticated methods for studying the evolution of organizational forms, and by applying them here, we demonstrate that institutions affect organizational populations in surprising ways.

In organizational theory, it is well established that organizations are influenced by the institutional structure of their environments (e.g., Hannan and Freeman, 1989) and that they affect their institutional environments (e.g., Mizruchi, 1992). Often, institutions provide a structure of incentives that is a benefit to a set of organizations, even if some or all of those organizations did not contribute to the creation of the institutions. This creates an opportunity for organizations to free-ride on the institution-building efforts of others and makes critical the question, "Why do organizations contribute to the creation of institutions when other organizations that did not contribute can also benefit?" Unlike the few other historical studies that have examined jointly the creation and influence of institutions (Hirsch, 1975; Torres, 1988; Leblebici et al., 1991), we consider this problem of collective action. We examine this collective action problem in this study of the dynamics of the populations of hotels at Niagara Falls. By hotels, we mean all organizations that host transient overnight visitors, including organizations called houses, inns, and motels.

Hotels at Niagara Falls had a collective action problem that was solved by the establishment of institutions. …