Microfoundations of institutional change

Microfoundations of a macro-level phenomenon

DNO seek to explain a macro phenomenon by specifying the microfoundations that bring it about (Raub et al., 2011). This is illustrated in Figure 1 using a trapezoid diagram best known for its use by Coleman (1990) in his critique of Weber’s (1958 [1904]) Protestant Ethic, and also repeatedly employed many years earlier by European structural individualists (Raub and Voss, 2016). In DNO’s account economic context, and spatial and network clustering—through complex contagion (Centola and Macy, 2007)—determine the net gains and externalities individual or corporate actors face as well as the incentive and capacity the state has to punish those deviating from the old institutional arrangement (downward arrow, Figure 1). An assumption of bounded rationality leads some actors to deviate, and the state to condone some portion of the deviations (rightward arrow, Figure 1). Self-reinforcing processes lead early deviations to spur more deviations, and deviating and state condoning mutually reinforce one another as well (upward arrow Figure 1), giving rise to a new institutional norm.

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Figure 1.

Theory proposed by DellaPosta et al. (2017) represented in Coleman’s (1990) diagram.

An interesting feature of the theory is that reinforcement takes place not only through the interdependent actions of individuals, but also through interaction between individuals on the one hand and the state on the other. The first kind of reinforcement arises out of the positive local externalities of others deviating from existing institutional rules, as is common in models of collective behavior (DiMaggio and Garip, 2011; Heckathorn, 1996; Young, 1993). Such reinforcement alters individual payoffs to such a degree that institutional change becomes a cooperative equilibrium outcome. However, to make this possible in the presence of state sanctions requires heroic assumptions about the magnitude of these externalities relative to the disutility incurred from sanctions (footnote 14 in DNO). DNO solve this by introducing an assumption of reinforcement also between individual and state action: More individuals deviating makes it harder for the state to sanction everyone (equation (5) in DNO), leading to further deviation (equation (2) in DNO), rendering sanctioning yet more impractical, and so on. In this way, the state is turned from an exogenous force generating opportunities and constraints for strategic actors into a strategic actor itself. Through strategic interplay, individuals and state co-evolve toward a new institution.

Rationality

Coleman proposed rational choice as a general theory of action at the micro-level (Coleman, 1989, 1990). The journal Rationality & Society serves as a vehicle for this effort, and social research around a rational choice core has steadily accumulated (Wittek et al., 2013). For individual agents, DNO employ a notion of bounded rationality in their agent-based model: Following models of myopic best response (Steglich et al., 2010; Young, 1993), agents trade off the short-term utility from compliance (equation (1) in DNO) against the utility from deviance (equation (2) in DNO) while occasionally choosing the less optimal course of action (equation (4) in DNO). Individual agents have incomplete information on the probability of state sanctioning, which they infer from recent deviation and sanctioning among their neighbors (equation (3) in DNO). The state is not explicitly modeled as a rational decision maker, instead following a function for the probability of sanctioning deviance that decreases in the net gain to individuals from the innovation and in the number of individuals deviating (equation (5) in DNO).

Broad in scope, bridging contexts, and disciplines

DNO evaluate their theory by examining in great detail two empirical instances of institutional change from entirely different contexts: the rise of private manufacturing firms in China and the emergence of gay bars in San Francisco. Testing theories in multiple distant empirical domains is a relatively rare and underappreciated practice. By doing so, one breaks through the natural barriers separating literatures that are organized around empirical foci, such as immigration, organizations, gender, and family, rather than theoretical scope. Such empirical separation renders theoretical development unnecessarily fragmented and noncumulative. Often the scope of a theory developed in one area goes well beyond the boundaries of the empirical phenomenon it was originally proposed to explain, but domain-oriented professional organization and specialization prevent opportunities for testing in other domains from materializing.

DNO not only bring together disparate empirical contexts but also academic disciplines. The intellectual problem they address is a key area of research in economics, political science and sociology, connecting scholarship on institutions in each. Promoting scholarship that unites empirical domains and academic disciplines around a theoretical core of purposive action and a light form of methodological individualism is the key mission of this journal. It is also a what Coleman’s proposed research program provides a roadmap for (Coleman, 1990).

Examining non-change

Coleman (1990) noted that in most research on revolution “the precise question that researchers are examining is not ‘For which social systems will revolutions occur?’ but rather ‘In those social systems in which a revolution does occur, what are the changes that lead to its occurrence?’” (p. 469). This is because scholars typically examine only cases of revolutions not of non-revolutions. Indeed, elsewhere (Gonzalez-Vaillant et al., 2015), I have similarly argued that social movement studies rarely consider control cases where movements could have emerged but did not (Amenta et al., 2010). Also in research on the diffusion of innovations, it is typical to examine only instances where innovations spread, not where they fail to spread (Rogers, [1962] 2003; Strang and Soule, 1998). The lack of a comparison group precludes Coleman’s first question about conditions under which change happens.

DNO are explicitly interested in determinants of institutional change, asking “which conditions allow innovations in private orders to evolve into the widespread decoupling that uproots and transforms institutional frameworks from below?” Requiring evidence on both success and failure, DNO deliver. They compare two municipalities in China’s Yangtze Delta region, Wenzhou and Shanghai, at a time when private firms were in both regions, an illegitimate organizational form. In Wenzhou, DNO’s theory predicts conditions to be more favorable than in Shanghai, with expected gains from deviance being high and externalities strong due to the clustered location of private enterprises. Consistent with theoretical predictions, DNO find earlier and more widespread adoption of the institutional in Wenzhou.

Utility, externalities, and sanctioning

On pages 491–502 of his “Foundations of Social Theory,” Coleman sketches a “theoretical framework of revolution.” This framework is specifically focused on regime change, the most radical form of institutional change, which involves force; yet each of the three mechanisms combined in DNO’s theory are to some extent present in underdeveloped form. These communalities are perhaps the strongest evidence that DNO have successfully formulated a theory of institutional change that advances the very paradigm Coleman envisioned for the social sciences.

DNO’s first mechanism is net gain: Individuals contemplating deviating from existing norms must see sufficient utility gain from doing so over the baseline utility derived from conformity. Analogously, Coleman argues that participation in revolutionary activity will depend on “the cost and benefits of such action” (p. 492).

Second, in DNO’s theory local cooperation and coordination among neighbors and contacts provide positive externalities that make participation increasingly rewarding as nearby others join. In the example of the San Francisco gay bars, this cooperation involves the development of strategies that minimize the chance of police raids and other legal interventions. Coleman also identifies positive externalities for the case of revolution though of a different nature, such as benefits to existing friendships and relations from following suit (pp. 494–495).

Finally, DNO argue that widespread deviance reduces the ability and incentive for states to sanction each instance of deviance, and the lack of sanctioning will further reinforce deviance until the state in essence accommodating the institutional innovation. Analogously, Coleman assumes that “the individual’s estimate of the probability that he will be punished for participation” diminishes when he/she expects many others to also take action (pp. 492–493).

I congratulate the authors on an innovative and rigorous contribution to the study of institutions that affirms the legacy of James Coleman and this journal.