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Embeddedness in Economic Action Analysis

The document discusses three views of how social structure relates to economic action: the utilitarian tradition which sees rational self-interest as minimally affected by social relations; an embeddedness view that behavior is deeply shaped by social norms and conventions leaving individuals no choice; and a third view that economic actors are embedded in ongoing networks of social relations that permeate economic life in complex ways and both efficiency and politics guide economic action.

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518 views7 pages

Embeddedness in Economic Action Analysis

The document discusses three views of how social structure relates to economic action: the utilitarian tradition which sees rational self-interest as minimally affected by social relations; an embeddedness view that behavior is deeply shaped by social norms and conventions leaving individuals no choice; and a third view that economic actors are embedded in ongoing networks of social relations that permeate economic life in complex ways and both efficiency and politics guide economic action.

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© Attribution Non-Commercial (BY-NC)
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Economic Action and Social Structure:

The Problem of Embeddedness


M. Granovetter, 1985

Luciana Silvestri
February 9, 2010
Two views

Utilitarian Tradition Embeddedness


(Undersocialized) (Oversocialized)
•Rational, self-interested •Behavior deeply affected by
behavior affected minimally social conventions, norms,
by social relations and values that individuals
• internalize
•Atomization; repeated •
transactions lead to less •Atomization seen in
competitive markets mechanic behavior;
• individual has “no choice”
•Social relations become an
epiphenomenon of the
market
•

Both reminiscent of
Hobbes’ Leviathan…
Two views

Utilitarian Tradition Transaction Cost


Theory

•Not only self-interest, but opportunism


•
•The hierarchy provides mechanisms (fiat; monitoring)
to curb opportunism
•
•It is thus an efficient solution to an economic problem
•
•A functional substitute for trust
•
•
A thrid view

•The actions of economic actors are embedded in


concrete, ongoing systems of social relations or
“networks”
•
•From general reputation to personalized relations
•
•Opportunism is not absent: networks permeate
different sectors of economic life in different ways
Some paradoxes

•Trust can breed malfeasance, contingent on the


structure of the social network...
•
•Fiat and monitoring are imperfect at all levels of the
hierarchy… (e.g. auditing; contracting; purchasing)
•
•Dense networks lead to manipulation of the hierarchy;
“changing its direction”
Take-away points

•Economic action is guided both by efficiency and


politics
•
•Social relations between firms are more important,
and authority within firms is less important, in
bringing order to economic life
•
•The structure of relations has more impact in curbing
opportunism than particular organizational forms
Critique

•Generalization. Relations can take different


forms: repeated transactions, alliances, multi-
firm trade associations…
•
•Static analysis. Does economic activity
fluctuate between forms over time, as a result
of repeated interactions?

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