Informal and Formal Organization in New Institutional Economics

45 Pages Posted: 27 Sep 2002

See all articles by Todd Zenger

Todd Zenger

University of Utah

Sérgio G. Lazzarini

Insper Institute of Education and Research

Laura Poppo

University of Kansas - School of Business

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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.

Keywords: organizational economics, formal and informal institutions, theory of the firm

JEL Classification: L2, L0, M1

Suggested Citation

Zenger, Todd R. and Lazzarini, Sérgio Giovanetti and Poppo, Laura, Informal and Formal Organization in New Institutional Economics. Available at SSRN: or

Todd R. Zenger (Contact Author)

University of Utah ( email )

David Eccles School of Business
1655 East Campus Center Drive
Salt Lake City, UT 84112
United States
801 585-3981 (Phone)
801 581-7939 (Fax)

Sérgio Giovanetti Lazzarini

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
55-11-45042387 (Phone)


Laura Poppo

University of Kansas - School of Business ( email )

Lawrence, KS 66045
United States

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