Strategic embeddedness and the microfoundations of collective action: A comparative institutional analysis of the rule of law and informal institutions in cooperation games
| DOI | 10.1177/0951629815586879 |
| Date | 01 January 2016 |
| Published date | 01 January 2016 |
| Author | Armando Razo |
| Subject Matter | Articles |
Article
Journal of Theoretical Politics
2016, Vol.28(1) 105–137
ÓThe Author(s) 2015
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DOI: 10.1177/0951629815586879
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Strategic embeddedness and
the microfoundations of
collective action: A
comparative institutional
analysis of the rule of law and
informal institutions in
cooperation games
Armando Razo
Indiana University, USA
Abstract
Typical accounts of the ability of social networks to enablecollective action focus on either whole
group or individual advantages. Adding an intermediate perspective, this paper advances a core
notion of strategic embeddedness that applies to social interactions involving a subset of society.
Strategic embeddedness is modeledwith a game-theoretic approach that places an otherwise iso-
lated game into a broader social structure. To facilitate a comparative institutional analysis of for-
mal and informal mechanisms, this paper advances a complementary notion of the cooperative
value of a network to evaluate the maximum payoffs possible under various network structures
that define the social context of two-person cooperation games. A formal analysis indicates that
decentralized network structures can maximize this cooperative value: under some conditions,
these are both optimal and efficient structuresthat can effectively substitute for anonymous public
enforcement mechanisms. In conditions where private enforcement is relatively ineffective vis-a
`-
vis a public rule of law enforcement mechanism, then hierarchical network structures are shown
to be optimal but inefficient. In general, more connectedness or a higher network density does
not readily translate into more cooperationbecause when most players are connected to the rest
of society, the added value of social networks diminishes in the absence of extraneous rules to
discriminate among playerswith common social connections.
Corresponding author:
Armando Razo, IndianaUniversity, 210 Woodburn Hall, Bloomington, IN 47405-7110, USA.
Email: arazo@indiana.edu
Keywords
Collective action; embeddedness; prisoner’s dilemma; rule of law; socialdilemmas; social
networks
1. Introduction
All societies face social dilemmas whose solution requires collective action that is
often unattainable due to conflicts between the self-interest of participants and
some notion of the public interest (Olson, 1965; Ostrom, 1998). Arguably, as the
work of Elinor Ostrom has amply demonstrated, collective action is the central
problem in studies of governance and development (Ostrom, 1998), but our under-
standing of potential solutions is limited by a couple of factors. Firstly, whereas it
is widely acknowledged that formal institutions such as an effective legal environ-
ment can ameliorate social dilemmas (North, 1981; Shepsle, 2006), their existence
and use outside of advanced economies is not widespread. Secondly, there is confu-
sion regarding a contrary and pervasive view across the social sciences that empha-
sizes alternative informal channels to enable collective action (Ostrom, 1990;
Ostrom and Anh, 2003). On the one hand, many policymakers and scholars have
largely embraced the idea that informal institutions matter for developmental pur-
poses (Knack, 2002; Stiglitz, 2000). Moreover, there is a tendency to describe infor-
mal mechanisms in relational terms. On the other hand, despite the great promise
of studying these informal mechanisms, explaining and measuring their impact is
hampered by lack of a systematic examination of the structure and performance of
supporting networks.
This paper builds upon the emerging literature on informal institutions by
addressing the question of whether societies can rely exclusively on social structures
to solve collective action problems. In particular, I ask what social structures, if
any, enable a society to successfully draw upon individual connections to enforce
private deals or punish defection from expected cooperation (Dixit, 2004). As infor-
mal institutions are deemed to have a high impact on social life, in many cases sub-
stituting for ineffective formal institutions, it remains to be asked whether a society
can feasibly develop solely on the basis of pervasive informal institutions (Helmke
and Levitsky, 2004). Specifically, can a society rely exclusively on existing social
structures to solve cooperation problems? Even if the answer were positive, it
remains to consider whether informal arrangements are superior to formal ones.
That is, we further require a comparative institutional analysis that asks how infor-
mal (relational) mechanisms compare to the more impersonal and universal
enforcement institutions that we identify with the rule of law in advanced countries.
We know that collective action problems are solvable, at least in principle, with
the use of a central authority or state. Indeed, conventional theories of the state
posit this entity as a formal, institutional solution that enables societies to move
beyond anarchy and disorder, sometimes depicted as a social dilemma due to lack
of cooperation (Hobbes and Pogson-Smith, 1965; Morris and Oppenheimer, 2004).
Implicit in this approach is the assumption that the state is a perfect agent of
106 Journal of Theoretical Politics 28(1)
society; that this entity can solve social dilemmas by acting as a disinterested party
that can help coordinate activities, enforce private agreements, and otherwise align
individual and collective interests. Underlying the behavior of such ideal states is
the emergence of the rule of law, an institutional setting in which both public
authorities and citizens rely on a stock of public, fair, and predictable rules
(Maravall and Przeworski, 2003).
Despite this theoretical foundation and historical relevance in advanced societ-
ies, the feasibility of effective state solutions in other settings faces major challenges
upon closer examination of required implementation incentives (Besley, 2007). By
generating order and security, states are themselves public goods, so they are sub-
ject to the same free-riding problems that they seek to solve, so a society without
pre-existing stock of effective formal institutions will underprovide them (Hardin,
1997). This thorny situation reflects a more general problem with reliance on insti-
tutional solutions to social problems. Institutions, however beneficial they can be,
are ultimately the result of collective choices as demonstrated by the work of both
Vincent and Elinor Ostrom who have cast this problem in terms of a nested hierar-
chy of institutional changes that deem the choice of a state solution as a ‘constitu-
tional choice’ (Ostrom, 2005). Choosing rules about rules (that is, meta-
institutional choices) immediately invites the possibility of an infinite regress in
which participants cannot readily agree on preferred institutions in a prior stage
(and higher choice level). In fact, coordinating on an institutional environment that
induces the rule of law is very difficult in the absence of a focal instrument such as
a widely accepted constitution (Weingast, 1997). Moreover, states are themselves
populated by political actors with their own interests, which may not be aligned
with the public interest (Weingast, 1995). A clear demarcation between a presum-
ably disinterested state and the society it serves is generally nonexistent, so the
impartiality attributed to an ideal state is also unfeasible (Migdal, 2001).
In the absence of perfect states, empirical studies suggest nonetheless that societ-
ies have an independent capacity for self-organization and cooperation (Ostrom,
1990). This conclusion receives much support across various social science disci-
plines, not just political science. For instance, anthropologists have long recognized
the importance of various informal mechanisms in conditioning and promoting
societal cooperation (Carsten, 2000; Knox et al., 2006). Obligations embedded in
kinship networks can serve to enhance reciprocity andother socially desirable beha-
viors (Carrier, 2005). Economists also have long noted the importance of social
capital, which operates through a variety of mechanisms such as ‘sympathy’ that
encourages pro-social behavior (Robison and Ritchie, 2010) or informal commit-
ments (Portes, 2010).
To be sure, there are theoretical arguments stemming from theories of repeated
games that identify the capacity for societies to rely on informal commitments, but
the underlying assumptions are highly restrictive. It is well known that ‘the shadow
of the future’ can induce cooperation in infinitely repeated games under certain
conditions (Axelrod, 1984; Fudenberg and Maskin, 1986).However, repeated inter-
action and reputational incentives cannot generally explain collective action at the
societal level because insights from the theory of repeated games are limited to
Razo 107
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