Informal and Formal Organization in New Institutional Economics
Todd R. Zenger
Washington University in Saint Louis - John M. Olin Business School
Sérgio G. Lazzarini
Insper Institute of Education and Research
University of Kansas - School of Business
Exchanges are governed by a set of formal institutions (contracts, incentives, authority) and informal institutions (norms, routines, political processes) which are deeply intertwined. However, for the most part, informal institutions are treated as exogenous forces which change the benefits to using alternative formal structures, and formal institutions are treated as mere functional substitutes for informal elements governing exchanges. As a result, scholars have not sufficiently explored the interactions between formal and informal institutions. We contend that the failure to integrate these concepts into a common theory has led to faulty reasoning and incomplete theories of economic organizations. In this paper, we highlight three potential areas of research exploring the interplay between formal and informal institutions: first, whether formal institutions support (complement) or undermine (substitute for) the contributions of informal institutions; second, how vacillation in formal organizational modes allows managers to efficiently alter the trajectory of informal institutions; and third, how certain informal institutions can lead to hierarchical failure, thereby requiring managers to constrain the boundaries of the firm.
Number of Pages in PDF File: 45
Keywords: organizational economics, formal and informal institutions, theory of the firm
JEL Classification: L2, L0, M1working papers series
Date posted: September 27, 2002
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.516 seconds