Evolutionary Economics, Institutional theory & Population Ecology

Question 1

Weber (1924/1930)

Answer 1

In the book The Protestant Ethic and the Spirit of Capitalism he alludes to the IRON CAGE
3 points,”trapped, can’t be stopped, until the end of days…
… The “iron cage” traps individuals in systems based purely on teleological efficiency, rational calculation and control.
…. “once established the momentum of beuracratization is irreversible”
… humanity was imprisioned by the rationalist order perhaps until the last ton of coal was burnt.

How Weber connects to DiMaggio & Powell:
ENVIRONMENT: Socially Constructed Norms
CHOICE: None
LEGITIMACY/SURVIVAL: firms desired legitimate authority/efficiency and developed bureaucracies and per institutional theory, firms desire legitimacy for survival and conform through ismorphism.

Question 2

DiMaggio & Powell (1983)

Answer 2

PURPOSE: Why are organizations so similar?
The iron cage Revisited. “New school”

• Professionalization & Capitalistic forces have led to set structures in Orgs/Industries … reinforces the homogenization of firms b/c the same professionals filter in and out of firms and the same types of individuals (holding similar beliefs and having similar values) rise to the top of these firms. Happens in 3 ways through isomorphic pressures:
  Categorized the types of isomorphic pressures 1)Coercive: political/laws that require firms to conform
  2)Normative: need to adopt practices assumed to be legitimate by significant actors (i.e., professions)
  3) Mimetic: copy other orgs in times of uncertainty.

Question 3

Levitt&March (1988)

Answer 3

Institutionalism can lead to competency traps

Question 4

Sherer & Lee (2002)

best paper awardAMJ

Answer 4

Resource Dependacy/Insitutionalsim Perspective.
Resource Scarcity ——–> Institutional Change
Legitimacy ———> Institutional Change

METHOD: Law Firms (changing HR practice, introducing the non-partner track to supplement the up and out system)
**Results Could be very different in a Startup Dynamic Setting- Low Uncertainty in this industry (no need for mimetic isomorphism, but high compliance with Normative&Coercive). Example- IBMs reluctance to venture into Personal Computers (seen as not legitimate market), not until Apple and Microsoft pave the way for legitimacy does IBM decide to join the party.

FINDING: Prestigious firms led institutional changes. Early adopters create legitimacy for others to follow

Question 5

Hitt et al. (2004)

Answer 5

• Institutional Stability (China) –> Long-term plan in selecting alliance partners (focusing on intangble assets and managerial capabilites (DCs).
• Institutional Instability (Russia) –> Short-term plan in selecting alliance partners. (looking for quick capital and tangible assets to survive the rocky environment)

***Interesting implication for crowdfunding. Design a study
3 Variables
- Resource Scarcity (sherer) ——+———–> ECF (Change in the status quo)
- Firm Legitimacy (sherer) ——+———–> ECF (Change in the status quo)
Institutional Instability(Hitt)——+———–> ECF (short-termfocus on capital only, not Intangibles)

Question 6

Greenwood & Suddaby (2006)

Answer 6

Institutional Entrepreneurship
METHOD: Case study of Big 5 Firms at Center of Mature Fields (accounting), assesses the network of firms
FINDING: boundary misalignment x boundary bridging x poor performance ——> act as Institutional Entrepreneurs (change institutions)

1-Boundary bridges = An Orgs exposure to Institutional Logics from other Industries (makes them more aware).
2-Boundary misalignment = technical scope of the Org > technical scope of the institution or governing body (SEC). (Reduced institutional pressure and makes them more open)
3-Poor performance (makes them more motivated)

• they say, “the accounting industry may not be typical”
• They call for studies to examine when central organizations act as institutional entrepreneurs and when they do not

Question 7

Hannan & Freeman (1977)

Answer 7

Population Ecology (Dawinism)
Why are there so many different types of organizations?
- Orgs adapt by scanning and responding to threats/opps.
- Limits on the ability of organizations to adapt are generated by structural inertia (can be both internal and external)
-
Sub-Theories:
o Inertia and change -holds that orgs that are reliable and accountable are those that can survive (favored by selection). A negative by-product is resistance to change.
o Niche theory - explains how generalists and specialists co-evolve. Specialist orgs maximize their exploitation of the environment and accept environmental change risk.
generalist orgs accept a lower level of exploitation in return for greater security. *Firms that maintain a large degree of slack are generalists (Penrose,1959;Cyert&March,1963)
– Theory predicts that in times of environmental change, the generalist strategy will prevail over the long term
- Age Theory (liability of newness / liability of aging)

Criticized by DiMaggio&Powell(83 )focuses almost soley on selection and not learned response (think Cohen,1990, Teece, 1997, Bandura, 77).

Question 8

Stinchcombe (1965)

Answer 8

Institutionalism/Pop Ecology relates to the “Liability of Newness”
New firms are not entrenched in ecology or institution, undefined roles & routines —-+—-> Increased chance of failure (death).

Question 9

Nelson & Winter (1989)

Answer 9

BOOK: An Evolutionary Theory of Economic Change

1) - critique of previous forms of economic models of firms (classical economics), and offers instead an approach to the modeling the evolution of industries and organizations
2) - draw off Simon: Classic models have optimizing agents, perfect information, total and unbounded rationality, and static equilibria. In their evolutionary theory, there are instead patterns of survival in the population of firms based on “organizational genetics.”
3) - In the real world, adapting to surprises take time. In classic theory, adaptation is presumed to move to equilibrium (very quickly). In reality, moves my also overshoot equilibrium (similar to Donaldson 1985 argument).

Similarities/Dif to Pop Ecology / Institutional Theory
ENVIRONMENT: “Selection” at the pop/system level
CHOICE: both recognize limits to org adaptibility exist
LEGITIMACY/SURVIVABILITY: PopEcology=Darwin (natural selection)
Evolutionary Theory= Lamarckian (more about choice/effort)

Question 10

Trends in Institutional Theory

Answer 10

Institutional Entrepreneurs may enable institutions to resist pressures, they can discern and influence collectives social beliefs (in contrast to the early idea that institutional change could only occur exogenously (i.e., a shock to the industry) {sounds like a move toward the idea of Resource Dependency theory}

• Network theory suggests those in bridging positions can initiate change
• Trend is towards a more agentic approach to institutional theory
• Managers today are working to change the institutional environment (i.e., CSR, political donations, corporate museums, etc.)

Question 11

Baum (2012) / Barnett (2008)

Answer 11

• Red-Queen theory
• organisms must adapt to survive while pitted against ever-evolving opposing organisms in an ever-changing environment.
  Evolutionary theory (why it is tougher for directly competing species).
• Competing firms learn from each others moves.
  Barnett,08 - This can condition them (and can cause them to fail in subsequent endeavors).