L 5 Introduction to Institutions Flashcards
What are Institutions?
Definition by Douglas North
“Institutions are the humanly devised constraints that structure political, economic and social interaction”
was does constraints mean in this definition of institutions?
facilitating or making certain behavior inappropriate
Formal constraints
laws, regulations, prescribed (vorgeschrieben) agreements.
They attempt to regulate behavior.
Informal constraints
sanctions, taboos, generally accepted ways, traditions, patterns of behavior
According to Elinor Ostrom
Institutions are a wide variety of rules that determine:
- who makes the decisions
- which actions are tolerated
- which procedures need to be followed
- which information needs to be provided
- which reward/penalty people can expect from their acts
What does the understanding of institutions do?
it reduced uncertainty
Richard Scott defines the elements of institutions
Regulative institutions
Cognitive Institutions
Normative Instituions
Regulative Instituions
formal rules
Normative Institutions
informal expectations
Cognitive institutions
“frames of reference” how we see the world
Who makes institutions?
People create and maintain institutions
Path-dependency
new institutions are constrained by preceding institutions that were in place
three main influential factors
society, state and markets
What do institutions lead to?
They do not lead to full rationality but to bounded rationality
Functional perspective (economic perspectives)
Institutions reduce uncertainty
Institutions give purpose and meaning
How can the functional perspective be explained?
By the game theory
game theory and functional perspective
cooperation between players depends on
repeated
complete information
small number of players
endgame
when game is not repeated
from a functional perspective institutions make:
make complex transactions possible and increase cooperation
Neo-institutionalism perspective
focuses on the sociological perspective and not on the economic one like the functional perspective
focuses how institutions influence the behavior of people and firms
institutions are there because they give legitimacy. Institutions define what is accepted, expected, allowed
Institutional isomorphism
refers to the processes that force a unit within a population to become more similar to others with a similar institutional context
forms of institutional isomorphism
- coercive isomorphism
- mimetic isomorphism
- normative isomorphism
coersive isomorphism
refers to the pressures organizations receive from the state and government mandate. Also corrective societal pressure plays a role.
For example, all public firms have to stick to financial reporting requirements, and restaurants have to comply with specific health and safety regulations, set by local and EU legislators.
mimetic isomorphism
imitation. Uncertainty encourages imitation Three types: - frequency imitation - trait imitation - outcome imitation
