What Are Institutions?

Abstract

A primary aim of this paper is to establish some workable meanings of key terms of institutional theory including institution, convention and organization, by drawing on insights from several academic disciplines. Institutions are defined broadly as systems of established and prevalent social rules that structure social interactions. This, in turn, prompts some examination of the concept of a rule, and why rules are followed. The author discusses some general issues concerning how institutions function and how they interact with individual agents, their habits, and their beliefs. The paper also addresses the controversial distinction between institutions and organizations. D. North’s influential formulations of these terms are criticized for being incomplete and misleading. The author examines this distinction and what may be meant by the term formal when applied to institutions or rules. Here an organization is treated as a type of institution involving membership and sovereignty. Further types of institution are also considered, including the difference between self-organizing and other institutions. The article identifies an excessive bias in the discussion of institutions toward those of the self-organizing type, showing theoretically that these are a special case. The author argues that institutions also differ with regard to their degree of sensitivity to changes in the personalities of the agents involved.