How Do Embedded Agents Engage in Institutional Change?
Burns, John, Nielsen, Klaus, Journal of Economic Issues
Institutional theories offer more insight into the processes that explain institutional stability than those that explain institutional change. This article starts by elaborating this general diagnosis and proceeds with a more specific focus on institutional change in organizations. Much institutional research focuses on the relative stability of organizational practices over time (Burns and Scapens 2000). Notwithstanding that such research usually acknowledges that institutional change can occur, a major scholarly challenge is to further conceptualize and seek empirical evidence for when, why, and how organizational actors influence change while embedded in the institutional fabric of their organizational setting.
Theories of Institutional Change
John L. Campbell (2004) has identified three major problems in theories of institutional change: change, mechanisms, and ideas. The problem of change arises from the lack of specification of the dependent variable, in other words, the type of change to be studied. The relevant dimensions of change and the timeframes of the study need to be specified. The problem of mechanisms is the lack of specification of the processes that account for causal relationships among variables. In this respect existing theories are generally characterized by either vagueness, an emphasis on correlations, or functionalist accounts. Finally, the problem of ideas relates to the lack of specification of the ways in which ideas constrain and facilitate institutional change. Campbell (1998, 2004) has stressed how ideas provide agents with theories and concepts that cognitively and normatively both constrain and enable institutional change.
Contemporary theories of institutional change are characterized by an explanatory bias toward the status quo as well as by poorly specified mechanisms of change. In addition, the type of change being discussed is seldom specified, and although the role of ideas is increasingly in focus this is still a relatively underdeveloped theme.
Douglass C. North has explicitly identified a bias toward the status quo. The impact of existing institutions on the pay-off matrices of the actors makes them most often prefer re-contracting within existing institutions rather than investment of resources in processes of institutional change (1990). The literature on "varieties of capitalism" (Hall and Soskice 1998) is rightly criticized for its focus on the self-reinforcing impact of institutional complementarities and its failure to understand processes of radical institutional transformations. The literature on path dependence similarly stresses feedback mechanisms, increasing returns, and network externalities that constrain processes of change along a path except from certain critical conjunctures (Pierson 1999). Other theories stress how legitimacy concerns, uncertainty, and lack of knowledge tend to make institutional change more or less similar in spite of variety of conditions (DiMaggio and Powell 1991). This institutional isomorphism explains the prevalence of imitation and similarity but not the change that initiates such processes in the first place.
Whereas orthodox economics perceives of institutional change as relatively smooth efficiency-enhancing adaptations to new conditions, institutional theories stress not only the inertia of institutions but also how the processes of change are partly formed by mechanisms such as power relations, chance, or contagion (Nielsen and Koch forthcoming 2006). A classical theme in theories of institutional change concerns the inertia of institutions in relation to the opportunities for improvement offered by new knowledge and new technology. Thorstein Veblen stressed the regressive role of institutions and distinguished between institutionalized behavior embedded in power relations and legitimized through tradition and the past, and behavior guided by matter-of-fact knowledge oriented toward the future (Waller 1994). …