I. INTRODUCTION
1.4. Conceptualization of the key variables
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determined by ability to cooperate with other actors (see Hall & Soskice, 2001). Social embeddedness drives the creation of institution as the institutional structures provide templates for societies to function and operate (Granovetter, 1985). Game theoretic approach suggests that engaging in institutional entrepreneurship is dependent on perception of how other actors behave, do they engage in complementary behavior or not.
Secondly, similarly to historical institutionalism, the history matters as historical institutional trajectories influences creation of new trajectories, where institutional heritage influences economic assets, social positions and cognitive lenses of actors with implications for pursuing new paths (Pierson & Skocpol, 2002). Thirdly, institutional systems are constituted by plurality of institutional fields and institutional evolution operates as a differential growth of institutional fields among the plurality of fields (Friedland & Alford, 1991; Blyth, Hodgson, Lewis & Steinmo, 2011; Haveman & Rao, 1997; Thelen, 2014). Lastly and most importantly, institutional change operates always endogenously and always as selection, which means that institutions never change but instead endogenously bottom-up new startups propose new institutional fields which via evolution by selection replace older fields.
1.4. Conceptualization of the key variables
The proposed research aims to research and theorize how new startups and organizations act as institutional entrepreneurs creating novel ways to organize and structure coordination of economic behavior and interaction among the stakeholders in market economies. Proposed research is structured via independent and dependent variables, and as the research is focused on how endogenous institutional evolution occurs, the independent variable is “institutional entrepreneurship” and the dependent variable is
“institutional evolution”. Thus, the research presupposes that by variation in institutional entrepreneurship we can explain variation in institutional evolution of market economies, but variation in existing institutional characteristics of the market economy conditions the variation in institutional entrepreneurship. The studied relationships between variables are presented below in Figure 1:
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Figure 1. Independent and dependent variables of the research
1.4.1. Conceptualization of the independent variable
The independent variable of institutional entrepreneurship refers to organizations theorizing and creating new institutions and then engaging in intentional leveraging of resources and networks to institutionalize the new institutions (e.g. Tracey, Phillips &
Jarvis, 2011). To understand institutional entrepreneurship conceptually, we need to firstly define organizations. Organization is a socially embedded coordination template of economic behavior – for successful operation of an organization, organization is required to simultaneously coordinate cooperation with various stakeholders, such as employees, investors, competition, suppliers, general public and government (see Hall & Gingerich, 2009; Hall & Soskice, 2001; Granovetter 1985). Organizational form can be also conceptualized as “an archetypal configuration of structures and practices given coherence by underlying values regarded as appropriate within an institutional context”
(Greenwood & Suddaby, 2006, p. 30). Organizations within same organizational field tend to be homogenous and cooperate more often with each other (Hoffmann, 1999, p.
352). In this research, organizations are conceptualized as follows: Organization is a socially embedded coordination template of economic behavior for cooperation of various stakeholders, influencing their interaction, investments into specific assets and structures of cooperation (including roles, culture and identities) and distribution of economic resources. Organization is therefore an institution at the micro-level, and as Streeck (2010) has argued of incentives to create institutions, similarly organizations as institutions have economic, political and socio-cultural dimensions as they are created to
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establish a certain stable social order to promote economic efficiency, to create political structure and hierarchy, and to bring meanings, values and identities to the social reality2. Thus, organization is largely an ideational model of governing cooperation, but is rooted in material assets and codifications of the organization. Importantly as Friedland (2009) has argued, the different dimensions are tangled; we cannot easily separate technical aspect from political or cultural aspect in organizational design.
Moreover, the research focuses on „startups‟ among all organizations, which can be defined as sets of new organizations that are characterized by experimental disposition to establish and develop innovative scalable templates to re-organize economic, social and political behavior within a society. Unlike „normal organizations‟ aiming for environmental fitness and isomorphism (Hannan & Freeman, 1989; Hall & Soskice, 2001), the startups are characterized by central focus on innovating how economic behavior can be re-organized, and importantly as they focus on finding scalable models, the startups are always institutional entrepreneurs aiming by organizational innovation to transform organization of societies. Institutional entrepreneurship thus requires intentional proposition of novel, contextually deviant and innovative organizational models, with objective to transform coordination of societies, which also includes political entrepreneurship to build coalitions, mobilize support and resources to institutionalize new institutions (Fligstein, 1997; Seo & Creed, 2002; Garud, Hardy &
Maguire, 2007; Tracey et al., 2011).
IV of institutional entrepreneurship is here conceptualized as follows:
- A process of experimenting and theorizing new alternative ways to coordinate and organize cooperation of various stakeholders, involving how they interact, how they invest into specific assets, how they structure coordination and distribute economic resources, and how they create meanings, values and identities.
Institutional entrepreneurship as a variable has following dimensions:
- Creation of novel economic models and structures for cooperation of stakeholders, - Creation of novel political-distributional structures for cooperation,
- Creation of novel sociocultural meanings, values and identities for interaction.
2 Scott (2008) argued institutions have three pillars: regulatory, normative and cognitive institutions.
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1.4.2. Conceptualization of the dependent variable
Institutional evolution requires conceptualization of institutions, institutional fields and institutional systems as institutional evolution is a multifaceted process revolving around institutions, fields and systems. Firstly, institutions can be understood as “relatively enduring features of political and social life (rules, norms, procedures) that structure behavior and that cannot be changed easily or instantaneously” (Mahoney & Thelen, 2009, p. 4). By so institutions act as “building blocks of social order” (Streeck & Thelen, 2005, p. 9). Institutions structure behavior of actors and organizations by structuring payoff functions of alternative strategies, which often operates by making deviation from norms costly by some manner (Phillips, Lawrence & Hardy, 2004; DiMaggio& Powell, 1983). Institutions are both exogenously and endogenously enforced as exogenously laws and rules are enforced and monitored by third parties, whereas endogenously by legitimacy pressures deviation is made costly, while cognitive barriers make new paths costly due to experimentation and trial-n-error (e.g. Phillips et al., 2004; DiMaggio &
Powell, 1983; Greif & Laitin, 2004). Institutions also empower compliance as institutions act as supply side resources and assets to provide coordination and cooperation patterns with other stakeholders, and as such institutions empower actors to engage in effective cooperation with other actors (Hall & Soskice, 2001; Jackson & Deeg, 2008). To summarize, institutions influence economic behavior via structuration of utility functions of actors and their potential strategies by defining certain strategies more productive than others, with optimal strategies often requiring compliance with institutions.
Institutions are endogenous and exogenous – they are socially structured but they appear as exogenous to the actors – and hence institutions require an integrated approach as they are constituted by social behavior but they are also constitutive of social behavior. This means that while economic, social and political behavior is influenced by the institutions, the institutions are constantly being reshaped by evolving economic, political and social behavior (Aoki, 2007; Streeck & Thelen, 2005). Institutions as structures also integrate subjective and objective elements – institutions as subjective beliefs of equilibrium behavior, but beliefs are grounded on observations of the objective reality (e.g. see Aoki, 2007; Campbell, 2004; Greif & Laitin, 2004; Blyth, 2002). This means institutions are
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salient ways of playing societal games, actors observing games as instruction how to play games, but games and institutions continuously evolve along the games (Aoki, 2013, p.
235; Lawrence et al., 2009, p. 6-7). Institutions are inherently endogenous (Przeworski, 2004; Lawrence et al., 2009; Aoki, 2013), but as they are historically inherited and create empirical regularities, they are often perceived by actors as exogenous and objective (Battilana, 2006; Berger & Luckmann, 1966). Objective exogenous nature of institutions is also due to inability of individual actors to unilaterally change institutional equilibriums or beliefs of them (Hall & Soskice, 2001). Moreover, the material organization of reality (e.g. firms) is structured via institutions, which provides objective structure, economic mass and stability to institutional systems. Rigid nature of institutions is also supported by institutions being political and social structures which mean firstly they define power and distributional aspects of social life and secondly stabilize societies by norms, values, ideologies and identities (Friedland, 2009; Streeck, 2010). To summarize, in this research, institutions are conceptualized as relatively fixed and inert largely ideational coordination assets of economic behavior, which specify and define appropriate strategies, organizational models, relational issues, roles and identities, as well as meanings and values for the interaction.
Institutions constitute institutional fields. Scott (1994, p. 207-208) defined an institutional field as “a community of organizations that partakes of a common meaning system and whose participants interact more frequently and fatefully with one another than with actors outside of the field”. Institutional fields are constellations of institutions, which are orchestrated by shared understandings and institutional logics – thus, institutions are essentially ideational assets for cooperation within societies (Hall & Soskice, 2001;
Tracey et al., 2011). Institutional logics provide actors “taken-for-granted, resilient, social prescriptions, sometimes encoded in laws, specifying the boundaries of a field, its rules of membership, and the role identities and appropriate organizational forms of its constituent communities” (Greenwood & Suddaby, 2006, p. 28). The institutional logics in essence bind individual institutions together and by so provide coherent frames and meanings for action (Friedland & Alford, 1991), or as Waldorff and Greenwood (2011, p.
118) argued, “institutions depend on institutional logics to make the invisible visible”.
Institutional logics hence provide direction how organizations should operate, what is
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appropriate and moral, and what is successful, and by so reduce ambiguity of otherwise abstract formal institutional imperatives (Thelen, 2004). Shared beliefs are necessary for establishing institutional equilibrium with appearance as an objective part of social reality (Campbell, 2004; Aoki, 2007). Institutional fields are at approximate institutional equilibrium, which means they are habitually self-reinforced as each actor‟s best response is to comply and reproduce institutionalized behavioral models (Greif & Laitin, 2004;
Hall & Soskice, 2001; Höpner, 2005). Institutional equilibrium thus means that institutional fields are relatively stable and nearly unchangeable by endogenous actions by actors. To summarize, in this research institutional field is conceptualized as ideational endogenously and exogenously enforced relatively stable and rigid coordination template (constituted by institutions) for economic behavior, which specify and define appropriate strategies, organizational models, relational issues, roles and identities, as well as meanings and values for the interaction. Conceptualization synthesizes, similarly to Aoki (2007; 2013), endogenous and exogenous aspects of institutions by assuming that institutional equilibrium, institutional beliefs and formal rules are interdependent with feedback mechanisms – i.e. institutions are behavior, endogenously institutionalized initially informally within societies, which leads to equilibrium and beliefs (of equilibrium), and these are then formalized at formal level, which reinforces the equilibrium and beliefs.
Institutional fields constitute institutional systems as each market economy as pluralist social systems is characterized by extensive institutional diversity of institutional fields and institutional logics (see Fligstein & McAdam, 2011; Lange, 2009; Crouch, 2005;
Herrmann, 2010; Becker, 2007; Greenwood et al., 2011; Friedland & Alford, 1991;
Hoffmann, 1999; Thornton & Ocasio, 1999; Bourdieu & Wacquant, 1992). Institutional fields have a hierarchy defined by the formal institutions of the market economy – for example, healthcare may be organized around for-profit entities, non-profits, public entities, religious entities and the hierarchy of alternative logics is defined by formal institutions (Greenwood et al., 2011, p. 335-336). Institutional fields and institutional system have relatively stable institutional equilibriums, which mean relationships between fields are relatively stable – i.e. actors or economic resources are not actively moving between fields (see Greif & Laitin, 2004). All institutional evolution operates by
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emergence of new institutional fields by startups creating the new fields. Institutional systems are hence defined as constellation of institutional fields, where important conceptual dimensions are formalization and ambiguity of institutions, together with diversity of institutional fields.
Finally, conceptualization of endogenous institutional evolution can be at basic level conceptualized as a process where institutional make-up of a society evolves by new fields emerging as new ways to coordinate cooperation among stakeholders. Institutional evolution is a transformation of how society is organized, including material and political structures, culture and identities as Friedland and Alford (1991, p. 250) argued institutional transformation is creation of “new social relationships and new symbolic orders”. Institutional evolution is hence an equilibrium shift from one ideational behavioral model to a new one as evolution operates as a coordinated behavioral change – society collectively shifting from one coordination model to a new one – which is coupled with evolution of informal beliefs and culture and creation of new formal institutions to support new behavioral models (Aoki, 2007; Culpepper, 2005; Greif &
Laitin, 2004). This is always an endogenous process as institutions are socially constructed and even exogenous impetus, such as critical junctures or exogenous shocks, need to be endogenously treated. More specifically, institutional evolution operates as selection which is conceptualized as a process where new institutional field emerges, economic resources are re-allocated from older to newer field and older institutional fields fade away due to re-allocation of resources (see Williamson, 1993; North 1990).
Thus, evolution is not adaption or changing of institutions, but emergence of new additional institutional fields to replace older fields to re-organize social order of the market economy with novel institutional structures. That means institutional change is simultaneously drastic and incremental as within the multiplicity of institutional fields each market economy holds various possible trajectories and moving from one trajectory to another operates by incremental re-allocation of resources from older path to new one.
Thelen (2014) has excellently shown how in Sweden institutional change operated as a shift from manufacturing to services, where both trajectories co-existed and co-evolved for long periods. Therefore, institutional evolution is a process of changing how society operates, an equilibrium shift, – how actors behave, interact and cooperate – leading to
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creation of new formal institutions to support novel organizational models of the society.
Initially society creates additional ideational institutional models to re-organize behavior, which later receives material and regulatory institutions to formalize new institutions.
To summarize, DV of endogenous institutional evolution is here conceptualized as - A process of field dynamics and evolution by selection, where new ideational
institutional fields as cooperation models emerge from organizational models of new startups, and re-allocation of resources between old and new fields (with material productivity as logic of allocation) leads to differential growth of institutional fields and institutional evolution.
Dimensions of the variable
- New institutional field as novel ideational coordination model of societal behavior (new economic model, new political structure, new socio-cognitive institutions).
- Evolution as field dynamics: Re-allocation of economic resources across institutional fields leading to differential growth of institutional fields;
o Static re-allocation: Resources flow from older to newer fields,
o Dynamic re-allocation: Resources exit entirely from older fields (e.g. labor retires), new resources enter dominantly to new fields (new labor generations).
- Formalization of new institutional field and its institutions (follows informal).
1.4.3. Conceptualization of intermediating variable
Institutional environment conditions, influences and even structures the payoff functions of alternative behavioral strategies (e.g. Scott, 2008; Hall & Soskice, 2001; DiMaggio &
Powell, 1983). For institutional entrepreneurship – pursuit of distinctively new, innovative and contextually different strategies – is also influenced by the institutional environment as pursuing alternative behavioral models and deviating from institutionalized behavioral models is costly in various ways (e.g. Phillips et al., 2004).
Institutions influence economic investments, social positions, and cognitive lenses of organizations which creates path dependent tendencies of organizations (Pierson &
Skocpol, 2002), and thus, institutional evolution is partly “a function of environmental constraints” (Blyth et al., 2011, p. 5; see also Streeck, 2016), which means the institutional environments influence the benefits and costs of institutional
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entrepreneurship, by so shaping the likelihood that actors engage in institutional entrepreneurship, as well as shaping the path trajectories of new institutional projects and the success of institutionalizing new path trajectories. Institutional environments as an intermediating variable influences institutional entrepreneurship by two dimensions of the concept: the quality and ambiguity of institutions, and institutional diversity of the market economy (Dorado, 2005). Not all social systems are similar; some systems empower more dynamic endogenous institutional evolution.
Quality of institutions refers to the ability of institutions to economize transaction costs via monitoring and enforcement to structure economic, political and social life (e.g.
North, 1990; Williamson, 1985) – better institutions create more systematic empirical regularities. Institutional quality and ambiguity effectively determine the costliness of engaging in institutional entrepreneurship (see Phillips et al., 2004; Dorado, 2005).
Stronger institutions create more systematic and less ambiguous behavioral imperatives by so generating more systematic economic, political and social behavior (Streeck &
Thelen, 2005; Becker, 2007). Institutions also create institutional isomorphism which influences utility of new institutional paths (DiMaggio & Powell, 1983). This means that variation in characteristics of quality and ambiguity of institutional systems influence the possibility and ability of institutional entrepreneurs to foster institutional evolution – more systematic institutional systems leads to more suppressed institutional entrepreneurship (Becker, 2007; Mahoney & Thelen, 2009). But as institution act as structures, too low quality of institutions suppresses institutional entrepreneurship (Dorado, 2005), and hence relatively high-quality institutions with imperfections empowers institutional entrepreneurship (Streeck & Thelen, 2005; Beckert, 1999).
Institutional diversity also explains variation in institutional entrepreneurship and endogenous institutional evolution among the market economies. Institutional diversity3 is defined by the diversity of institutional fields – the pluralism of alternative institutionalized operational models within the market economy (e.g. see Greenwood et
3 Hall and Soskice (2001) conceptualized institutional diversity as a question of complementariness but arguably this is a conceptual error due to macro observation as at macro-level differences in institutional diversity within market economies are observed as differences in coherence. Market economies are pluralist societies, with diversity of organizations.
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al., 2011; Friedland & Alford, 1991). Market economies as institutional constructs do not vary in terms of complementariness as Hall and Soskice (2001) suggested, as all institutional systems require coherence as incoherent systems would be dysfunctional and unsustainable as social systems (Becker, 2007). The observed macro-level complementariness (see Hall & Soskice, 2001; Hall & Gingerich, 2009) is actually a question of institutional diversity as more diverse institutional systems seem less coherent and vice versa if observed at macro-level. Conceptual correction for new institutionalism is central to understanding institutional evolution as the pluralist nature of institutional systems empower institutional entrepreneurship (Friedland & Alford, 1991). Institutional diversity is constituted by both internal and external (i.e. international) access to various institutions and institutional logics where heterogeneity of economic behavior requires heterogeneity of institutions (Greenwood et al., 2011; Lange, 2009; Herrmann, 2010).
Importantly, dimensions of institutional quality and institutional diversity are interdependent as increasing quality of institutions leads to declining institutional diversity via consolidation of institutional fields and by so increasing homogeneity of institutional environments (Greenwood et al., 2011). That means institutional systems tend to vary from high quality, highly homogenous systems to low quality, highly heterogenic. Perfect institutional system would be a monosystem but this is solely theoretical as socially constructed institutional systems are always imperfect and the international embeddedness creates always an element of institutional diversity. Lastly, the size of the political economy is also influential as larger economies due to size possess more internal institutional variation while smaller economies and societies are more compact and coherent entities. Similarly Dorado (2005) argued that institutional diversity and quality (or level of institutionalization) determines space for experimentation and agency for actors to act as institutional entrepreneurs (Schneiberg &
Clemens, 2006; Clemens & Cook, 1999).
Clemens, 2006; Clemens & Cook, 1999).