A New Institutional Economic Perspective on Alternative Governance Mechanisms at the Local Government Level

Abstract

The ‘new institutional economics’ (NIE) can go a long way towards comprehending the emerging complexities of local government. As local bodies seek to forge collaborative partnerships with other organisations, they have to decide whether to solve horizontal co-ordination problems through market, hierarchy or network mechanisms. NIE can show that where other governance mechanisms are incomplete or subject to high transaction costs, trust and co-operation can informally develop through the process by which network interactions become embedded within each other. We show how this approach can be revised to take into account the expressive dimension of behaviour in hope-based networks whose members are bound together not so much by structures of resource dependence as by the hope and trust they place in the advancement of common goals.

JEL: L38

Keywords

NIE networks local government transaction costs hope and trust

Despite considerable cross-country diversity in both the functions undertaken by local government and the sources of local government revenue, there has been a global trend towards increasing complexity in the local public sector over the past two decades. Bailey (1999, p. 262) observes that this trend has been particular marked in advanced countries, where a ‘shift away from monolithic, hierarchical, highly standardised, bureaucratic production technologies to micro-corporatist networked organisations dominated by meeting the needs of consumption rather than production’ constitutes.

This article will seek to examine how far economic theory can go in understanding this complexity. It takes the view that while a public choice–agency theoretic perspective may highlight the susceptibility of local authorities to various types of government failure (Kerr, 1999; Wallis, 1999), it may fail to adequately grasp some of the complexities and potentialities of ‘modern’ local government. In particular, it may neglect the networking capacity local authorities have exhibited in those countries where they have played a catalytic role in forging multi-organisational partnerships (MOPs) with government agencies, businesses, community groups and voluntary associations. We will, first, seek to understand how far the ‘new institutional economics’ (NIE) can go in comprehending this capacity through its transaction cost analysis of markets, hierarchies and networks. The main contribution this article will make will be to suggest how the standard economic assumptions, which underlie this approach, should be revised to distinguish the ‘expression games’ played in hope-based networks (HBNs), fostering trust from the ‘strategic games’ played in interest-based networks (IBNs) so that the ‘facilitative’ role local authorities typically play in the latter may be compared with the more demanding ‘transformational leadership’ role they may be required to play in the former. To play either role, it must be assumed that local authorities are democratically elected and have a mandate, in terms of either a ‘power of general competence’ or the legislation that specifically governs central–local relations, to engage in partnerships with other organisations in order to facilitate the development, in a broad sense, of their local communities.

The article naturally divides itself into four main sections. The first section will consider how local authorities can be involved in MOPs. The second section will then apply an NIE perspective to analyse how horizontal co-ordination problems in these implementation structures may be solved through markets, hierarchies and networks, respectively. The third section will suggest how economic theory should be modified to compare IBNs with HBNs. The fourth section concludes the article by comparing the transformational leadership with the facilitative role local authorities may be required to play when they are confronted with either type of network in their MOPs.

Local Government Involvement in Multi-organisational Partnerships

There would seem to be two main ways in which local authorities can be involved in MOPs. First, central government may co-opt local bodies, along with other organisations, into policy initiatives like community policing that are targeted towards local citizens. Second, local authorities may exercise their own initiative in establishing collaborative partnership arrangements with other organisations. Typical examples of this would be where local governments join with local business leaders and tertiary institutions to facilitate small business development or develop a strategy to make the local area more attractive for new investments. In many countries, local authorities have been active in establishing collaborative relationships with businesses, voluntary organisations and community associations in the fields of urban and rural regeneration, as well as in social care, education, environmental and other policy sectors (Lowndes & Skelcher, 1998, p. 314).

These tendencies appear to have gained momentum in the past two decades as ’decrementalist’ fiscal policies have placed resource-constrained local bodies under more pressure to lever-in new sources of finance. In this regard, MOPs can enable local bodies to gain access to grant regimes that require financial and in-kind contributions from the private and voluntary/community sectors. They can also use their private sector partners to overcome public sector constraints on access to capital markets (Mackintosh, 1992).

Over the same period, the organisational and management changes that have been undertaken at all levels of government have also expanded the scope for MOPs. In particular, the restructuring of large bureaucratic structures into single-goal agencies (Hood, 1991) that, in some cases, have been sold off to the private sector and, in other cases, been kept at ‘arm’s length’ from each other through quasi-market arrangements, like the ‘purchaser–provider split’, has tended to increase the fragmentation of the public sector. As the range of different agencies responsible for shaping and delivering policy has increased dramatically, the problems of horizontal co-ordination that arise in this ‘polycentric terrain’ (Rhodes, 1997, p. xii) have often been addressed at the local level, where MOPs provide a means of developing strategic direction and sustaining co-ordination.

The central feature of MOPs is their underlying ‘structures of resource dependency’ (Rhodes, 1988). This arises because the groups and organisations that could potentially belong to them control different amounts and types of resources—authority, legitimacy, money, information etc. They could therefore benefit from engaging in processes of deliberation, compromise and negotiation that produce a system of horizontal co-ordination through which dispersed resources can be mobilised and pooled so that ‘collective (or parallel) action can be orchestrated towards the solution of a common policy’ (Kenis & Schneider, 1991, p. 36).

Two major problems would appear to stand in the way of the emergence of this system of horizontal co-ordination. The first is the ‘prisoners’ or bargaining dilemma that arises in situations where defection from co-operation is more rewarding for opportunistically rational actors than compliance due to the risk of being cheated (Scharpf, 1992). Some actors may withhold the resources they have agreed to contribute to partnerships and attempt to ‘free-ride’ on the contributions other parties make to the advancement of common goals. Second, there is what Borzel (1998) terms the ‘structural dilemma’ that arises because the actors that engage in partnership decisions are often agents of the groups they claim to represent.

The framework the NIE presents for comparing the three main types of institutional solution to these co-ordination problems must now be considered.

A New Institutional Economics Approach to Comparing Markets, Hierarchies and Networks

Attempts by economists to differentiate alternative institutional solutions to horizontal co-ordination problems often take as their point of departure the emphasis seminal thinkers in the NIE tradition (Coase, 1937; Williamson, 1985) gave to markets and hierarchies as distinct governance mechanisms associated with specific types of transaction costs. Subsequent developments in this tradition have added a third category to this scheme. Different triads of terms have thus emerged: markets, hierarchies and networks (Thompson et al., 1991); community, market and state (Streek & Schmitter, 1985); markets, bureaucracies and clans (Ouchi, 1991); price, authority and trust (Bradrach & Eccles, 1991); and markets, politics and solidarity (Mayntz, 1993). All these hark back, in a sense, to Boulding’s (1978) distinction between exchange, threat and integrative relationships. Although there are different emphases in these schemes, three ideal types can be delineated as presented in Table 1 (adapted from Powell, 1991). It should be borne in mind, though, that as Bradrach and Eccles (1991, p. 289) point out, ‘price, authority and trust are combined with each other in assorted ways in the empirical world’.

The Market Mechanism of Governance

Table 1 indicates that one possible solution to horizontal co-ordination problems in MOPs may be through a market system of governance in terms of which the resource contributions of the various partners would be specified through a series of legally binding contracts. At least some measure of hierarchy may be required to operate this contractualist mode of governance. This could take the form of an organisational structure, like a contract management agency with the authority to enter into and manage contracts with the various partners. The property rights implications and key features of this predominantly market mode of governance have been succinctly summarised by Lowndes and Skelcher (1998, p. 318):

Price mechanisms are the means by which the relationships are mediated and where conflicts emerge there may be haggling or recourse to law in order to determine the liabilities of the parties involved. Markets provide a high degree of flexibility to actors in determining their willingness to form alliances, although the competitive nature of the environment and the parties’ underlying suspicion may limit the degree of commitment to any collaborative venture.

Table 1.

Modes of Governance: Market, Hierarchy and Network

	Market	Hierarchy	Network
Normative basis	Contract—property rights	Employment relationship	Complementary strengths
Means of communication	Prices	Routines	Relational
Methods of conflict resolution	Haggling—resort to courts	Administrative fiat—supervision	Norm of reciprocity—reputational concerns
Degree of flexibility	High	Low	Medium
Amount of commitment	Low	Medium	High
Tone or climate	Precision and/or suspicion	Formal and bureaucratic	Open-ended mutual benefits
Actor preferences	Independent	Dependent	Interdependent

Source: Hindmoor (1998, p. 30).

This mode of governance may give rise to particular transaction costs that render it incomplete in the case of MOPs. Hindmoor (1998, p. 30) has identified four different sources of transaction costs that could have this effect: ‘complexity’, ‘power asymmetries’, ‘information asymmetries’ and ‘thinness’.

With respect to complexity, he argues that ‘a proposed exchange is more complex the larger the number of contingencies that have to be considered ex ante by both parties before being able to specify what will ex post constitute satisfactory performance of an agreement’ (p. 30). The number of contingencies that arise in MOPs may simply be too large to be governed by a complete system of contracts. Moreover, the qualities of ‘consummate co-operation’—the use of judgement, enthusiasm and initiative—that may be expected of the parties involved in these collaborative arrangements may simply be too difficult to define in contractual terms.

Apart from these complexities, the potential effect of power asymmetries may discourage some groups and organisations from participating in these arrangements. In this regard, Hindmoor (1998) suggests that some parties may be reluctant to engage in contractual arrangements with central government agencies since they may fear that they will be unable to enforce compliance or achieve compensation through the courts because of the unique capacity the government has to ‘overturn or ignore judgments against it’ (p. 31). Lowndes and Skelcher (1998) have found that where contractualist arrangements are used to govern programme delivery by MOPs, power asymmetries may work to the detriment of voluntary and community organisations. Despite ‘official insistence’ on community involvement in the urban regeneration projects they studied in the UK, these organisations were often excluded. As one of their interviewees commented:

Unless you’re cute and big, the voluntary sector could get squeezed out. Small and specialized voluntary organizations haven’t got the clout or understanding required by the process. These organizations are valuable because they bring enormous energy and commitment, but you need political clout and strategic nous to get into partnerships’. (p. 327)

A third, and very familiar, source of transaction costs in contractualist arrangements are information asymmetries. These ‘occur and complicate exchange when the underlying circumstances relevant to a trade are known by one or more but not all parties to that exchange’ (Hindmoor, 1998, p. 31). The tendency by actors in market modes to treat information as a type of property to be used to gain an advantage over their collaborators as well as their competitors may inhibit the free flow of information and cause information asymmetries to persist to a degree greater than that observed with network modes of governance.

The fourth source of transaction costs mentioned by Hindmoor (1998) arises when transactions are ‘thin’ since ‘the smaller the number of trading partners an actor can deal with to achieve their desired objectives, the more likely it is that ‘the very consummation of an exchange can leave one or both actors more reliant upon the other’ (p. 32). This appears to be a general formulation of the problem of asset specificity analysed by Williamson (1985). In the context of MOPs, Hindmoor (1998) essentially argues that the more complex the system of contracts becomes in terms of the contingencies it covers, and the more specific tasks are contractually allocated to different partners, the greater the dependence these partners will have on one another and therefore the greater the risk they face of being opportunistically exploited by each other.

When these factors cause the transaction costs associated with market modes of governance to be high, other modes like hierarchies or networks may be more efficient. Consideration does need to be given, though, to the types of transaction costs they generate. We will, first, do this with regard to the hierarchical mode of governance.

The Hierarchical Mechanism of Governance

A hierarchical solution to the problems of horizontal co-ordination in an MOP could involve the establishment of a bureaucratic structure with clear roles, responsibilities and reporting lines to co-ordinate the inputs of the different organisations. This could be overseen by a partnership board in which the number of votes held by the representatives of the different organisations could be clearly established. This may overcome some of the problems of co-ordination and collaboration found with market modes.

Significant transaction costs could, however, be involved in establishing such a hierarchical structure and maintaining its authority over time. Lowndes and Skelcher (1998) refer to the potentially high negotiation costs that could be involved in establishing a partnership board.

The transactions costs associated with establishing a hierarchy would thus appear to be related to the degree to which a contest for authority arises between the potential partners. This may explain why hierarchical structures can emerge with relative ease in cases where the vertical line of authority is largely uncontested. Hindmoor (1998, pp. 33–34), thus, observes that ‘in the case of the employee-employer relationship, hierarchy is attractive to both parties because it is assumed that the employee has no particular preference over the nature of the tasks they are called upon to perform’.

Unfortunately, this is unlikely to be the case with an MOP since the potential partners ‘cannot remain indifferent to the direction in which authority is exercised as it is precisely this that they seek to influence’ (Hindmoor, 1998, p. 34). Indeed, it is possible that the contest for authority between these actors may be unresolved and a hierarchical structure may fail to form. Alternatively, it may only be possible to form a partnership board by deliberately excluding groups or organisations, which cannot accept its authority. The MOPs may, thus, have to function without their co-operation. However, even if a reasonably inclusive structure can emerge from this contest for authority, it is likely to have a tendency towards formalisation and routinisation that may result in further transaction costs in terms of reduced flexibility and innovation.

It would seem, then, that both market and hierarchical modes of governance may be incomplete or subject to high transaction costs. Questions must then be raised about the relative desirability of networks as a mode of governance for MOPs. Can they form and function with lower transaction costs than markets or hierarchies? Are they more flexible or inclusive? Can they elicit greater commitment from potential partners? It is to these questions that we now turn.

The Network Mechanism of Governance

Networks cannot be simply distinguished from other governance mechanisms by the presence of trust and absence of rules in network-like relationships. Although most writers on networks would agree with Hindmoor (1998, p. 25) that to understand how these governance mechanisms develop, ‘it is necessary to understand how and why trust emerges’, this does not imply that trust is not also an important factor, reducing the transaction costs of markets and hierarchies. The essential difference is that while ‘markets and hierarchies generate trust by providing institutional safeguards … the defining characteristic of a network is a trust that does not depend on the presence of formal and exogenous safeguards’ (p. 34).

Moreover, this trust is based on a confidence that the actors in a network will not break the rules that circumscribe the boundaries of their co-operative behaviour. These rules have been conceived in a variety of ways. Rhodes (1988, pp. 42–43) finds the differences between various types of ‘policy networks’ residing in the ‘operating codes’, ‘underlying philosophies’ and ‘rules of the game’ that govern relations within them. Wilks and Wright (1987, p. 305) refer in a similar vein to how the avoidance of disputes within such networks is tantamount to ‘an unwritten constitution’ governing relationships. In a corresponding manner, Jordan and Richardson (1979, pp. 100–101) have sought to identify the ‘operation understandings’ that influence ‘the process by which and the atmosphere within which … policy-making is resolved’. They highlight the importance of rules, which allow actors to achieve ‘understandings which benefit all participants’ (p. 472). According to this view, such rules are constitutive of policy networks since they give each actor information about how others can be expected to act and thereby enable collaborative activity to be undertaken ‘in a context where participants already have mutual needs, expectations and experiences’ (Jordan, 1990, p. 326).

The main difference between the rules and understandings that govern network relationships and those that characterise markets and hierarchies would, thus, seem to lie in the informality of the former. As Hindmoor (1998, p. 35) has pointed out:

Because they are informal and unwritten, such rules cannot be enforced in the way that a legally recognized contract can. Neither is compliance ensured by giving one actor hierarchical authority over the actions of another. Clearly the actors in a (network) must trust each other not to exploit their positions and trust each other in the absence of any external safeguards. It is trust that makes the emergence and survival of such rules possible.

It would, thus, seem that, from an NIE’s perspective, networks can address horizontal co-ordination problems without requiring their members to expend resources on institutional safeguards against opportunistic or non-co-operative behaviour.

Networks are, of course, not just a concern of NIE. The study of networks has been very much in vogue in recent years. According to Kenis and Schneider (1991), the network concept seems to have become ‘the new paradigm for the architecture of complexity’. The widespread use of network concepts across a variety of disciplines is reflected in the following comments by Borzel (1998, p. 252):

Microbiologists describe cells as information networks, ecologists conceptualise the living environment as network systems, computer scientists develop neuronal networks with self-organizing and self-learning capacities. In contemporary social sciences, networks are studied as new forms of social organization in the sociology of science and technology, in the economics of network industries and network technologies, in business administration and in public policy.

The main problem facing network theorists in the social sciences would seem to be to explain how the collaborative activities within the context of ‘interdependent relationships based on trust, loyalty and reciprocity’ that they typically associate with networks can be developed and sustained. Most of the solutions to this problem can be grouped into two categories. The first is derived from the type of strategic game theory that has become very familiar to economists. It seeks to explain the formation of networks, based on complementary interests. The second is derived from the (less familiar) concept of ‘expression games’ formulated by Goffman (1959). We will seek to compare and contrast two types of networks—one interests-based and the other hope-based—that can be explained in terms of these two types of games. Although the expression games that give rise to HBNs may seem to lie more within the domain of social psychology than economics, we will try and suggest how rational choice theory can be modified to help it explain better this type of interaction.

Interest- Versus Hope-based Networks

Over the past two decades, game theorists have made considerable progress in developing their understanding of the conditions under which it is rational for agents to trust and co-operate with one another (Axelrod, 1984; Coleman, 1990; Kreps, 1990). The following factors differentiate the games modelled by these theorists from the ‘Prisoners Dilemma’ situations that render socially suboptimal non-co-operative strategies rational from an individual perspective: the number of actors is relatively small; contact with those outside the network is limited; interaction between actors is expected to be frequent; and co-operation in one area can be made contingent upon co-operation in other areas. Under these conditions, actors will calculate the impact their non-compliance with network rules will have on their reputation within, and future access to, the network. Where each member holds a mutual expectation that the costs of non-compliance will exceed the benefits, trust and co-operation can develop, since, as Gambetta (1988, p. 10) puts it, ‘actors will trust since they have reason to trust’. The resulting IBN can, thus, be expected to function as a stable governance mechanism despite the absence of formal sanctions against non-compliance with its ‘rules’.

Policy Communities as Interest-based Networks

Hindmoor (1998) has suggested that the IBNs that emerge from these repeated games are likely to take the form of ‘policy communities’ rather than ‘issue networks’. A distinction between these two types of ‘policy network’ has been made by Marsh and Rhodes (1992, p. 25) along the lines presented in Table 2.

Table 2.

Policy Communities Versus Issue Networks

Dimension	Policy Community	Issue Network
Membership
Number of participants Types of interest	Very limited, some groups consciously excluded Economic and/or professional interests dominate	Large Encompasses range of interests
Integration
Frequency of interaction Continuity Consensus	Frequent, high-quality interaction of all groups on all matters related to policy issues Membership, values and outcomes persist over time. All participants share basic values and accept the legitimacy of the outcomes	Contacts fluctuate in frequency and intensity Access fluctuates significantly. Some agreement exists but conflict is ever present
Resources
Distribution of resources Internal Power	All participants have resources, basic relationship is an exchange relationship Hierarchical; leaders can deliver members There is a balance of power among members. Although one group may dominate, it must be a positive-sum game if the community is to persist	Some participants may have resources, but they are limited. The basic relationship is consultative Varied, variable distribution and capacity to regulate members Unequal powers, reflecting unequal resources and unequal access—zero-sum games

Source: Marsh and Rhodes (1992, p. 25).

For governance within an MOP to take the IBN form of a policy community, it would seem that the complementarity of interests between partners should arise from a relatively balanced structure of resource dependencies. Access to the MOP must, therefore, be limited to those partners who can make significant resource contributions. Moreover, these contributions would not be limited to a particular project, but would occur in the context of an ongoing policy issue, or series of interconnected issues, with respect to which the actors share the same tacit or paradigmatic understanding. Their need to engage in ‘frequent, high-quality interaction’ with respect to this issue or issues would have the effect of transforming a ‘one-off’ game into an iterated relationship. As negotiations become embedded within other negotiations, trust and co-operation can develop since actors will realise that defection in any one area can lead to the unravelling of co-operation in other areas. This characteristic of what Granovetter (1985) termed ‘embeddedness’ would seem to save the transaction costs of setting in place more formal safeguards against non-compliance with network rules.

The institutional disadvantages of IBNs do, however, become clearer the more they conform to the ideal type of a policy community. In the first place, these governance mechanisms can become as elitist and exclusive in their own way as hierarchies. Moreover, their informality can make it difficult to hold them publicly accountable in the same way as hierarchical structures that function under the aegis of elected public bodies like local authorities. In their survey of the urban regeneration activities of MOPs, Lowndes and Skelcher (1998, p. 328) found that:

The importance of informality, personal relationships and trust…was regarded negatively by some of our informants. Network-style relationships were viewed by those who felt excluded or marginalised as ‘cosy’, ‘cliquey’ or ‘sewn-up’. The reliance on social contact, friendship and personal trust made it hard for new actors to ‘break in’ to networks.

More specifically, it would seem that IBNs can ossify into ‘iron triangles’, comprising committee councillors, professional managers and ‘insider’ interest groups that collude to keep in place programmes that confer benefits on each party and spread costs over the local rate-paying or national tax-paying population, while, at the same time, denying other groups access to the local policy process.

Policy communities have also been portrayed as sources of resistance to change. In Britain, case studies based on the ‘Rhodes model’ have been made of policy networks in agriculture, civil nuclear power, youth employment, smoking, heart disease and health services, information technology and exchange rate policy (Marsh & Rhodes, 1992). Most of these networks were found to exhibit, to a varying degree, the properties of policy communities so that ‘in each area a limited number of groups enjoyed privileged access to policymaking shaping both the policy agenda and policy outcomes’ (Rhodes & Marsh 1992, p. 199). Significantly, Rhodes and Marsh (1992) conclude that such policy networks can act as a major constraint on policy change. These writers point out that such networks ‘do not necessarily seek to frustrate any and all change but to contain, redirect and ride-out such change, thereby materially affecting its speed and direction’ (pp. 196–197).

There are also opportunity costs associated with the time and effort involved in networking activities. In this regard, Lowndes and Skelcher (1998, pp. 322–323) make the following comment:

Getting to know key individuals and building relationships took time and could distract organizations from their ‘core business’. As one informant noted: You could pack your week with inter-agency meetings, but what would you drop then?

Less obviously, from a perspective that focuses narrowly on transaction costs, there may be what Borzel (1998) terms ‘redundant possibilities’ in such apparently wasteful networking activities, in that they ‘can provide additional, informal linkage between the inter- and intra-organizational decision-making arenas … (that) help to overcome the structural dilemma of bargaining systems…. Networks do not directly serve for decision-making but for the information, communication and exercise of influence in the preparation of decisions’ (p. 262).

Borzel does, however, broaden her critique of the NIE approach to analysing the comparative institutional advantage of networks by referring to the way it neglects ‘the role of consensual knowledge, ideas, beliefs and values’ (p. 264). She goes on to suggest that alternative, more cognitive, approaches to the studies of policy networks may be emerging in theories of learning and communicative action like the ‘advocacy coalition’ model of Sabatier (1988) in which network members ‘do not resort to strategic bargaining but rather rely on processes of communicative action such as policy deliberation or policy change through policy learning’ (p. 264).

At first sight, such theories may seem to be suggesting a mode of network interaction that lies outside the explanatory domain of conventional economic analysis. We will now look at a specific framework that can be applied to modify a rational choice approach to explain interaction within HBNs.

Hope-based Networks

In an important survey article on ‘The Emotions and Economic Theory’, Elster (1998) has suggested a number of ways in which rational choice theories could be modified to better explain the effect the emotions have on behaviour. According to this writer, emotions like hope can be distinguished from non-emotional mental states by six features, namely ‘cognitive antecedents, intentional objects, physiological arousal, physiological expressions, valence, and action tendencies’ (p. 49). This scheme may be simplified and made applicable to HBNs by distinguishing three components of the emotion their members come to share in common.

In the first place, their shared hope will be triggered by the ‘core beliefs’ they have about the possibility of advancing their common goals through engagement in the policy process. In essence, a belief that it is ‘neither inevitable nor impossible’ (Sutherland, 1989, p. 193) that certain goals can be advanced through participation in the policy process must be combined with a belief that these goals are ‘worthy of pursuit in a special way incommensurable with other goals we might have’ (Taylor, 1985, p. 135) to elicit a hope that is expressed through an investment or commitment of self to the realisation of these goals.

Emotions like hope, nevertheless, involve more than a set of beliefs. These beliefs must be expressed with a degree of ‘emotional energy’ that is reflected in the characteristics of physiological arousal, physiological expression and valence described by Elster (1998). Collins (1993) has formulated a theory in which emotional energy is ‘the common denominator in rational social action’. According to this writer, only people with very high or very low levels of emotional energy will pass the attention threshold at which their degree of emotional intensity becomes ‘empirically visible, both in behavior (especially nonverbal expressions and postures) and in physiology’ (Collins, 1993, p. 211). We have suggested that the beliefs underlying hope will be expressed with a high and observable passion to advance the goals in which it is placed. This passion can ‘either draw people toward, or repel them away from, interactions in which it is generated by participants’ (Wallis & Dollery, 1999, p. 144).

In his survey of emotion theory, Elster (1998, p. 47) has pointed out that ‘by and large, psychological studies of the emotions have not focused on how emotions generate behaviour. Instead, they have tried to identify the proximate or ultimate causes of the emotions. To the extent that psychologists are concerned with behavior, it is usually with action tendencies rather than with observable actions’. These ‘action tendencies’ have been defined by Frijda (1986, p. 70) as ‘states of readiness to execute a given type of action’.

Three distinctive action tendencies would appear to be produced by the shared emotion that is developed within HBNs. In the first place, the shared hope of members will give rise to an entrepreneurial alertness to opportunities to advance their common goals. Fromm (1968, p. 9) has highlighted this characteristic of hope:

Hope is paradoxical. It is neither passive waiting nor is it unrealistic forcing of circumstances that cannot occur. It is like the crouched tiger, which will jump only when the moment for jumping has come’.

A second (and related) action tendency is a readiness to keep striving to advance their goals in the face of cumulative disappointment. Snyder (1994) defined hope as ‘the sum of the willpower and way power that you have for your goals’ (p. 5). He proposes that, in the course of striving to achieve the goals they place their hopes in, people need to exercise (a) ‘willpower’ as they draw on their reserves of emotional energy or ‘determination and commitment’ and (b) ‘way power’ as they generate one or more effective paths to their realisation. They will particularly need to exercise willpower and way power in the face of opposition or resistance or when the path they are pursuing towards a goal comes to be blocked.

From this perspective, hope primarily generates an action tendency towards perseverance. It can, thus, be seen as an important source of the in-process benefits that reward people for their participation in that type of activity where, according to Hirschman (1985), a ‘fusion of striving and attaining’ may occur as individuals ‘savour in advance’ the realisation of what they are striving for. This not only compensates them for ‘the uncertainty about the outcome, and for the strenuousness or dangerousness of the activity’ but also can act as a disincentive to freeriding in team situations (pp. 14–15).

The action tendencies of alertness and perseverance appear to characterise the ideal type of a ‘policy entrepreneur’ described by Kingdon (1984) who is depicted as ‘lying in wait’ for an opportunity to push their pet proposals or concerns forward for consideration by other policymakers. HBNs can therefore be conceived as bringing together policy entrepreneurs who seek to engage in the policy process in pursuit of goals that are the object of their shared hopes.

The third action tendency produced by hope includes a tendency to be drawn to interact with actors who share the same hope. To explain this action tendency, Elster (1998, p. 64) rejects a cost–benefit model of the emotions that treats them ‘as psychic costs and benefits that enter into the utility function on a par with satisfactions derived from material rewards’ in favour of an approach that views them both as sources of dissonance and as mechanisms of dissonance reduction. He, thus, seeks to apply to a study of the emotions the theory of ‘cognitive dissonance’ popularised by Festinger (1957), which suggests that to reduce the unpleasant feeling of tension they experience when they act on their tendencies, individuals will look for cognitions that support their actions and reduce the feelings of tension or dissonance that arise when they engage in them. This approach can explain why individuals who hold the beliefs associated with hope will be drawn to interact in HBNs that share their beliefs. There would appear to be two ways in which network interaction can strengthen the emotions shared by members: through the rhetoric that strengthens the beliefs that underly shared emotions and through the production and reproduction of emotional energy through interactions with other members of the group.

Interactions within HBNs is likely to involve a mutual sharing of reasons for the beliefs that trigger these emotions. Each member is likely to have his or her own reasons for participating in the network, but these will always, to a degree, be implicit, inchoate and partly articulated. They will therefore look to others to provide a clearer, more explicit articulation that reinforces the beliefs they share in common. This will not only strengthen the cohesion of the network but may also serve an ‘evangelistic’ function, persuading outsiders to commit themselves to these groups as an expression of how much these beliefs mean to them.

An HBN can come to be identifiable by its rhetoric. It can be seen as being engaged in what Goffman (1959) called ‘expression games’. These are typically a form of social interactions that involve ‘senders’ who express themselves in particular ways, and ‘receivers’ who take in and react to such expressions, forming an impression of the ‘senders’. Loury (1994) has argued that this concept is particularly pertinent to policy studies since the interpretation of political expression generally involves ‘making inferences from the expressive act about the sender’s motives, values and commitments’ (pp. 432–433). He suggests that acceptance by a particular receiver may require the use of ‘code words’ and the resort to ‘groupspeak’. These expressive acts will induce a dissonance that impacts on group members according to the degree that they compromise their autonomy by engaging in them. They may therefore function as a selection mechanism, screening out those members for whom this dissonance is most intense so that the internal cohesion of the HBN increases with time as it comes to comprise a membership that genuinely shares the beliefs that are expressed through this rhetoric.

Another type of selection mechanism has been identified by Collins (1993). This writer emphasises what he calls the ‘interaction ritual’ (IR) aspect of expression games. He proposes that an IR can only be ‘successful’ in the sense that it augments the reserves of ‘emotional energy’ that the members of a group need to draw on if they are to maintain the action tendencies associated with the emotions they share in common if it passes two important thresholds. The first is a ‘threshold of boundedness’. This is likely to be passed in interactions within HBNs since their members will hold the set of beliefs that give rise to their shared emotion with a level of emotional energy that is high enough to be observable. A person who does not have the passion of other members will find it more difficult to interact within these networks than Kuran’s (1990) theory of preference falsification seems to suggest. It will be hard to ‘keep up an act’, continuously ‘fooling’ other members about their lack of emotional intensity, and, even if they succeed in this falsifying strategy, they will derive no satisfaction from a sense of belonging to these groups. A culture of passion can therefore function as a selection mechanism, screening out those participants who do not genuinely share the HBNs’ beliefs. The boundedness of these networks may, thus, be enhanced over time by the selective effect of this culture.

The second threshold that must be passed for a successful IR to occur is what Collins terms a ‘threshold of density’. This threshold is passed when at least two persons are close enough for a sufficient period of time to ensure that they can be moved by one another’s passion. Frequent, face-to-face, interactions could be regarded as having a high density in this sense.

Collins argues that once the thresholds of boundedness and density are passed in a particular IR, the participating group’s focus of attention and common emotional mood will go through a short-term cycle of increase and mutual stimulation until a point of emotional satiation is reached. The interaction will leave each participant with an ‘energetic afterglow’ that ‘gradually decreases over time’ so that individuals have an incentive to reinvest their emotional energy in subsequent interactions. It may therefore accumulate across IRs so that individual members may build up ‘a long-term fund’ (Collins, 1993, p. 212) of passion by repeated participation in successful IRs. It is this fund or reserve of ‘willpower and way power’ that can be drawn on by the members of an HBN to counter the emotional component of the dissonance they experience as a result of accumulated disappointments and to sustain their ‘action tendencies’ to ‘lie in wait’, ‘like crouched tigers’ for opportunities to advance their common goals.

A comparison between IBNs and HBNs is made in Table 3. From a comparative institutional perspective, there would seem to be a number of advantages an HBN has when compared to an IBN as a governance mechanism within an MOP. The action tendencies towards entrepreneurial alertness and perseverance that are produced within an HBN are likely to make their members both more flexible and more committed than the members of an IBN. These action tendencies can be regarded as a type of ‘value-added to the expression games played within HBNs since these are just as likely to solve ‘prisoners’ and ‘structural’ dilemmas as the repeated strategic games played within IBNs. In addition, the members of an HBN are likely to have a strong ‘change orientation’ as compared to the members of an IBN. Rather than simply seeking to ‘contain and ride-out’ changes imposed from the top-down, they will ‘lie-in-wait’, preparing themselves to take advantage of opportunities to either initiate changes that advance their common goals or advance one another into positions from which they can launch such initiatives.

Table 3.

Interest-based Versus Hope-based Networks

	Interest-based Network	Hope-based Network
Type of game	Repeated strategic game.	Expression game with repeated IRs
Motive for co-operation	Resource dependence	Shared belief in the worth and possibility of goals
Explanation of actor behaviour	Cost–benefit analysis of co-operation vs defection.	Search for cognitions to reduce dissonance
Tone or climate	Open-ended mutual benefits	Passion
Flexibility	Medium	High
Commitment	Medium	High
Orientation to change	Contain and ‘ride it out’	Overcome resistance to it
Potential opposition from excluded groups	Low/medium	Eventually high
Continuity	Long term	Medium term
Deliberative rationality	Encouraged	Discouraged by ‘political correctness’
Leadership dependence	Medium	High

Source: The authors.

The recognition that HBNs are effective ‘change agents’ may provoke strong opposition from those groups that are excluded from the MOPs the HBNs manage to take over, while IBNs may be just as elitist—exclusion from, say, a typical policy community may be viewed as less threatening to the groups concerned. They will view it as constituting the ‘local establishment’ that needs to be accommodated or circumvented if they are to advance their own goals. The emergence of an HBN that not only holds the levers of local power but is also committed to using them to overcome all resistance to the changes it is seeking to implement does, however, present a more serious institutional threat to groups with rival goals. To counter this ‘imminent danger’, they may mobilise ‘reactionary’ HBNs that are committed to advance the forward momentum of ‘progressive’ HBNs. This corresponds, of course, with Sabatier’s (1988) finding that in ‘policy subsystems’ where participants are divided on a narrow set of core beliefs, a stable alignment of rival ‘advocacy coalitions’ can emerge over time. The balance of power between these groupings is only likely to be disturbed by exogenous factors like an election or economic crisis. This structure may therefore produce a ‘policy paralysis’ no matter how strongly orientated any one advocacy coalition or HBN is to paradigmatic change.

The potential for HBNs to provoke the mobilisation of resistance sufficient to produce such policy paralysis may mean that they may be less long-lived than IBNs. The ‘long-march’ strategies of IBNs with their characteristic emphasis on ‘incremental change through partisan mutual adjustment’ (Lindblom, 1959) may thus ensure a longer continuity of these governance mechanisms than is the case with HBNs whose focused passion to advance the group’s goals may eventually produce strong resistance and the accumulation of disappointments that can eventually ‘douse the fire’ produced by their early success in advancing their goals.

In addition to the degree that an HBN seeks to strengthen its internal cohesion through a ‘politically correct’ language involving ‘code words’ and ‘groupspeak’, they may become more prone to policy errors (Loury, 1994) and less likely to deliberate about the scope for compromise between competing goals than are IBNs that often require a high degree of deliberative rationality to forge a reconciliation of interests.

Finally, HBNs are likely to be more dependent on actor-specific leadership skills than IBNS. At least one actor in an IBN is required to initiate and facilitate the informal pre-partnership collaborative activities out of which an MOP may be formed. However, for an HBN to emerge from these networking activities, the members may have to look to one actor as the ‘leader’. Leaders can play a focal role in HBNs, facilitating the development of a ‘culture of passion’ and the convergence of follower hopes on a shared vision. To do this, they may ensure that the thresholds of density and boundedness are passed by structuring group interaction into a number of levels descending in status from the ‘inner circle’ of followers who the leader chooses to interact directly with. Access to this level of interaction will be limited to those followers in whom the leader has placed the highest level of trust. This trust will be based not just on the skills and resources which these followers can deploy in performing the tasks allocated to them but also on the passion which they express in seeking ways to advance the leader’s quest. Leaders can thus shape the development of their follower culture by setting the terms according to which followers compete for access to their inner circle. Moreover, they can influence the passion that is generated in this circle and which filters down the different levels of followership by enhancing the commonality of focus and emotional mood that is stimulated by IRs. Bennis and Nanus’ (1985) conception of leaders as ‘managers of meaning’ would seem to be pertinent in this regard. To perform this function, leaders may direct their follower’s attention to the point and significance of their actions and interactions and narrow their evaluation of this point and significance to a simple consideration of whether these activities are moving the quest in the direction intended by the leader (Wallis & Dollery, 1999).

The comparative institutional analysis we have undertaken of markets, hierarchies and both IBNs and HBNs would suggest that no mechanism can a priori be argued to be a superior mode of governance for MOPs. We need to direct our attention, now, to the role local authorities can play in these structures.

Conclusion

Local authorities can position themselves at the centre of these networks whether they take the IBN or HBN form discussed in the previous section.

NIE can be adapted to take account of both interest- and hope-based types of network interaction, it can provide a rationale for the relatively open-minded approach to the capabilities of particular local authorities that can be associated with an ‘activist orientation’ by central government to local government policy (Wallis & Dollery, 1999). Rather than simply presuming that local authorities, in general, have an excess spending bias due to their susceptibility to various types of local government failure, this approach would recognise the networking capacity some local authorities might have developed through repeated interaction with other organisations in MOPs. From this perspective, the question of whether particular local authorities may have a comparative advantage in coordinating and steering such MOPs is essentially an empirical one. An activist approach to local government policy would thus not involve the centre conferring a carte blanche on all local authorities. Rather, it would foster and develop central–local trust-based relationships in which those authorities that satisfy the performance expectations of the centre are rewarded by being entrusted with more functions and a greater degree of local autonomy. Eventually, the most trusted authorities could come to play a significant activist role in the supply of local governance and the development of their communities.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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