Economic Action and Social Structure: The Problem of Embeddedness

Author(s): Mark Granovetter

Source:

American Journal of Sociology,

Vol. 91, No. 3 (Nov., 1985), pp. 481-510

Published by: The University of Chicago Press

Stable URL: http://www.jstor.org/stable/2780199

Accessed: 28-09-2017 05:52 UTC

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide

range of content in a trusted digital archive. We use information technology and tools to increase productivity and

facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected].

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at

http://about.jstor.org/terms

The University of Chicago Press

is collaborating with JSTOR to digitize, preserve and

extend access to

American Journal of Sociology

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Economic Action and Social Structure:

The Problem of Embeddedness'

Mark Granovetter

State University of New York at Stony Brook

How behavior and institutions are affected by social relations is one

of the classic questions of social theory. This paper concerns the

extent to which economic action is embedded in structures of social

relations, in modern industrial society. Although the usual neoclas-

sical accounts provide an "undersocialized" or atomized-actor ex-

planation of such action, reformist economists who attempt to bring

social structure back in do so in the "oversocialized" way criticized

by Dennis Wrong. Under- and oversocialized accounts are paradox-

ically similar in their neglect of ongoing structures of social rela-

tions, and a sophisticated account of economic action must consider

its embeddedness in such structures. The argument is illustrated by

a critique of Oliver Williamson's "markets and hierarchies" research

program.

INTRODUCTION: THE PROBLEM OF EMBEDDEDNESS

How behavior and institutions are affected by social relations is one of the

classic questions of social theory. Since such relations are always present,

the situation that would arise in their absence can be imagined only

through a thought experiment like Thomas Hobbes's "state of nature" or

John Rawls's "original position." Much of the utilitarian tradition, in-

cluding classical and neoclassical economics, assumes rational, self-

interested behavior affected minimally by social relations, thus invoking

an idealized state not far from that of these thought experiments. At the

other extreme lies what I call the argument of "embeddedness": the argu-

1 Earlier drafts of this paper were written in sabbatical facilities kindly provided by

the Institute for Advanced Study and Harvard University. Financial support was

provided in part by the institute, by a John Simon Guggenheim Memorial Foundation

fellowship, and by NSF Science Faculty Professional Development grant SPI 81-

65055. Among those who have helped clarify the arguments are Wayne Baker,

Michael Bernstein, Albert Hirschman, Ron Jepperson, Eric Leifer, Don McCloskey,

Charles Perrow, James Rule, Michael Schwartz, Theda Skocpol, and Harrison White.

Requests for reprints should be sent to Mark Granovetter, Department of Sociology,

State University of New York at Stony Brook, Stony Brook, New York 11794-4356.

0002-9602/86/9103-0001$01 .50

AJS Volume 91 Number 3 (November 1985): 481-510 481

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

ment that the behavior and institutions to be analyzed are so constrained

by ongoing social relations that to construe them as independent is a

grievous misunderstanding.

This article concerns the embeddedness of economic behavior. It has

long been the majority view among sociologists, anthropologists, political

scientists, and historians that such behavior was heavily embedded in

social relations in premarket societies but became much more autono-

mous with modernization. This view sees the economy as an increasingly

separate, differentiated sphere in modern society, with economic transac-

tions defined no longer by the social or kinship obligations of those trans-

acting but by rational calculations of individual gain. It is sometimes

further argued that the traditional situation is reversed: instead of eco-

nomic life being submerged in social relations, these relations become an

epiphenomenon of the market. The embeddedness position is associated

with the "substantivist" school in anthropology, identified especially with

Karl Polanyi (1944; Polanyi, Arensberg, and Pearson 1957) and with the

idea of "moral economy" in history and political science (Thompson 1971;

Scott 1976). It has also some obvious relation to Marxist thought.

Few economists, however, have accepted this conception of a break in

embeddedness with modernization; most of them assert instead that em-

beddedness in earlier societies was not substantially greater than the low

level found in modern markets. The tone was set by Adam Smith, who

postulated a "certain propensity in human nature .. . to truck, barter and

exchange one thing for another" ([1776] 1979, book 1, chap. 2) and as-

sumed that since labor was the only factor of production in primitive

society, goods must have exchanged in proportion to their labor costs-as

in the general classical theory of exchange ([1776] 1979, book 1, chap. 6).

From the 1920s on, certain anthropologists took a similar position, which

came to be called the "formalist" one: even in tribal societies, economic

behavior was sufficiently independent of social relations for standard

neoclassical analysis to be useful (Schneider 1974). This position has re-

cently received a new infusion as economists and fellow travelers in his-

tory and political science have developed a new interest in the economic

analysis of social institutions-much of which falls into what is called the

"new institutional economics"-and have argued that behavior and in-

stitutions previously interpreted as embedded in earlier societies, as well

as in our own, can be better understood as resulting from the pursuit of

self-interest by rational, more or less atomized individuals (e.g., North

and Thomas 1973; Williamson 1975; Popkin 1979).

My own view diverges from both schools of thought. I assert that the

level of embeddedness of economic behavior is lower in nonmarket

societies than is claimed by substantivists and development theorists, and

it has changed less with "modernization" than they believe; but I argue

482

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

also that this level has always been and continues to be more substantial

than is allowed for by formalists and economists. I do not attempt here to

treat the issues posed by nonmarket societies. I proceed instead by a

theoretical elaboration of the concept of embeddedness, whose value is

then illustrated with a problem from modern society, currently important

in the new institutional economics: which transactions in modern capi-

talist society are carried out in the market, and which subsumed within

hierarchically organized. firms? This question has been raised to promi-

nence by the "markets and hierarchies" program of research initiated by

Oliver Williamson (1975).

OVER- AND UNDERSOCIALIZED CONCEPTIONS OF HUMAN

ACTION IN SOCIOLOGY AND ECONOMICS

I begin by recalling Dennis Wrong's 1961 complaint about an "over-

socialized conception of man in modern sociology"-a conception of peo-

ple as overwhelmingly sensitive to the opinions of others and hence obe-

dient to the dictates of consensually developed systems of norms and

values, internalized through socialization, so that obedience is not per-

ceived as a burden. To the extent that such a conception was prominent

in 1961, it resulted in large part from Talcott Parsons's recognition of the

problem of order as posed by Hobbes and his own attempt to resolve it by

transcending the atomized, undersocialized conception of man in the

utilitarian tradition of which Hobbes was part (Parsons 1937, pp. 89-94).

Wrong approved the break with atomized utilitarianism and the empha-

sis on actors' embeddedness in social context-the crucial factor absent

from Hobbes's thinking-but warned of exaggerating the degree of this

embeddedness and the extent to which it might eliminate conflict:

It is frequently the task of the sociologist to call attention to the intensity

with which men desire and strive for the good opinion of their immediate

associates in a variety of situations, particularly those where received theo-

ries or ideologies have unduly emphasized other motives.... Thus sociolo-

gists have shown that factory workers are more sensitive to the attitudes of

their fellow workers than to purely.economic incentives.... It is certainly

not my intention to criticize the findings of such studies. My objection is

that ... [a]lthough sociologists have criticized past efforts to single out one

fundamental motive in human conduct, the desire to achieve a favorable

self-image by winning approval from others frequently occupies such a

position in their own thinking. [1961, pp. 188-89]

Classical and neoclassical economics operates, in contrast, with an

atomized, undersocialized conception of human action, continuing in the

utilitarian tradition. The theoretical arguments disallow by hypothesis

any impact of social structure and social relations on production, distribu-

tion, or consumption. In competitive markets, no producer or consumer

483

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

noticeably influences aggregate supply or demand or, therefore, prices or

other terms of trade. As Albert Hirschman has noted, such idealized

markets, involving as they do "large numbers of price-taking anonymous

buyers and sellers supplied with perfect information . .. function without

any prolonged human or social contact between the parties. Under per-

fect competition there is no room for bargaining, negotiation, remonstra-

tion or mutual adjustment and the various operators that contract to-

gether need not enter into recurrent or continuing relationships as a result

of which they would get to know each other well" (1982, p. 1473).

It has long been recognized that the idealized markets of perfect compe-

tition have survived intellectual attack in part because self-regulating

economic structures are politically attractive to many. Another reason for

this survival, less clearly understood, is that the elimination of social

relations from economic analysis removes the problem of order from the

intellectual agenda, at least in the economic sphere. In Hobbes's argu-

ment, disorder arises because conflict-free social and economic transac-

tions depend on trust and the absence of malfeasance. But these are

unlikely when individuals are conceived to have neither social relation-

ships nor institutional context-as in the "state of nature." Hobbes con-

tains the difficulty by superimposing a structure of autocratic authority.

The solution of classical liberalism, and correspondingly of classical eco-

nomics, is antithetical: repressive political structures are rendered un-

necessary by competitive markets that make force or fraud unavailing.

Competition determines the terms of trade in a way that individual trad-

ers cannot manipulate. If traders encounter complex or difficult relation-

ships, characterized by mistrust or malfeasance, they can simply move on

to the legion of other traders willing to do business on market terms;

social relations and their details thus become frictional matters.

In classical and neoclassical economics, therefore, the fact that actors

may have social relations with one another has been treated, if at all, as a

frictional drag that impedes competitive markets. In a much-quoted line,

Adam Smith complained that "people of the same trade seldom meet

together, even for merriment and diversion, but the conversation ends in

a conspiracy against the public, or in some contrivance to raise prices."

His laissez-faire politics allowed few solutions to this problem, but he did

suggest repeal of regulations requiring all those in the same trade to sign a

public register; the public existence of such information "connects indi-

viduals who might never otherwise be known to one another and gives

every man of the trade a direction where to find every other man of it."

Noteworthy here is not the rather lame policy prescription but the recog-

nition that social atomization is prerequisite to perfect competition (Smith

[1776] 1979, pp. 232-33).

484

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

More recent comments by economists on "social influences" construe

these as processes in which actors acquire customs, habits, or norms that

are followed mechanically and automatically, irrespective of their bearing

on rational choice. This view, close to Wrong's "oversocialized concep-

tion," is reflected in James Duesenberry's quip that "economics is all

about how people make choices; sociology is all about how they don't

have any choices to make" (1960, p. 233) and in E. H. Phelps Brown's

description of the "sociologists' approach to pay determination" as deriv-

ing from the assumption that people act in "certain ways because to do so

is customary, or an obligation, or the 'natural thing to do,' or right and

proper, or just and fair" (1977, p. 17).

But despite the apparent contrast between under- and oversocialized

views, we should note an irony of great theoretical importance: both have

in common a conception of action and decision carried out by atomized

actors. In the undersocialized account, atomization results from narrow

utilitarian pursuit of self-interest; in the oversocialized one, from the fact

that behavioral patterns have been internalized and ongoing social rela-

tions thus have only peripheral effects on behavior. That the internalized

rules of behavior are social in origin does not differentiate this argument

decisively from a utilitarian one, in which the source of utility functions is

left open, leaving room for behavior guided entirely by consensually de-

termined norms and values-as in the oversocialized view. Under- and

oversocialized resolutions of the problem of order thus merge in their

atomization of actors from immediate social context. This ironic merger is

already visible in Hobbes's Leviathan, in which the unfortunate denizens

of the state of nature, overwhelmed by the disorder consequent to their

atomization, cheerfully surrender all their rights to an authoritarian

power and subsequently behave in a docile and honorable manner; by the

artifice of a social contract, they lurch directly from an undersocialized to

an oversocialized state.

When modern economists do attempt to take account of social in-

fluences, they typically represent them in the oversocialized manner rep-

resented in the quotations above. In so doing, they reverse the judgment

that social influences are frictional but sustain the conception of how such

influences operate. In the theory of segmented labor markets, for ex-

ample, Michael Piore has argued that members of each labor market

segment are characterized by different styles of decision making and that

the making of decisions by rational choice, custom, or command in up-

per-primary, lower-primary, and secondary labor markets respectively

corresponds to the origins of workers in middle-, working-, and lower-

class subcultures (Piore 1975). Similarly, Samuel Bowles and Herbert

Gintis, in their account of the consequences of American education, argue

that different social classes display different cognitive processes because

485

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

of differences in the education provided to each. Those destined for

lower-level jobs are trained to be dependable followers of rules, while

those who will be channeled into elite positions attend "elite four-year

colleges" that "emphasize social relationships conformable with the

higher levels in the production hierarchy.... As they 'master' one type of

behavioral regulation they are either allowed to progress to the next or are

channeled into the corresponding level in the hierarchy of production"

(Bowles and Gintis 1975, p. 132).

But these oversocialized conceptions of how society influences individ-

ual behavior are rather mechanical: once we know the individual's social

class or labor market sector, everything else in behavior is automatic,

since they are so well socialized. Social influence here is an external force

that, like the deists' God, sets things in motion and has no further ef-

fects-a force that insinuates itself into the minds and bodies of individ-

uals (as in the movie Invasion of the Body Snatchers), altering their way

of making decisions. Once we know in just what way an individual has

been affected, ongoing social relations and structures are irrelevant. So-

cial influences are all contained inside an individual's head, so, in actual

decision situations, he or she can be atomized as any Homo economicus,

though perhaps with different rules for decisions. More sophisticated (and

thus less oversocialized) analyses of cultural influences (e.g., Fine and

Kleinman 1979; Cole 1979, chap. 1) make it clear that culture is not a

once-for-all influence but an ongoing process, continuously constructed

and reconstructed during interaction. It not only shapes its members but

also is shaped by them, in part for their own strategic reasons.

Even when economists do take social relationships seriously, as do such

diverse figures as Harvey Leibenstein (1976) and Gary Becker (1976),

they invariably abstract away from the history of relations and their

position with respect to other relations-what might be called the histor-

ical and structural embeddedness of relations. The interpersonal ties de-

scribed in their arguments are extremely stylized, average, "typical"-

devoid of specific content, history, or structural location. Actors'

behavior results from their named role positions and role sets; thus we

have arguments on how workers and supervisors, husbands and wives,

or criminals and law enforcers will interact with one another, but these

relations are not assumed to have individualized content beyond that

given by the named roles. This procedure is exactly what structural soci-

ologists have criticized in Parsonian sociology-the relegation of the

specifics of individual relations to a minor role in the overall conceptual

scheme, epiphenomenal in comparison with enduring structures of nor-

mative role prescriptions deriving from ultimate value orientations. In

economic models, this treatment of social relations has the paradoxical

effect of preserving atomized decision making even when decisions are

486

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

seen to involve more than one individual. Because the analyzed set of

individuals-usually dyads, occasionally larger groups-is abstracted

out of social context, it is atomized in its behavior from that of other

groups and from the history of its own relations. Atomization has not

been eliminated, merely transferred to the dyadic or higher level of analy-

sis. Note the use of an oversocialized conception-that of actors behaving

exclusively in accord with their prescribed roles-to implement an

atomized, undersocialized view.

A fruitful analysis of human action requires us to avoid the atomization

implicit in the theoretical extremes of under- and oversocialized concep-

tions. Actors do not behave or decide as atoms outside a social context,

nor do they adhere slavishly to a script written for them by the particular

intersection of social categories that they happen to occupy. Their at-

tempts at purposive action are instead embedded in concrete, ongoing

systems of social relations. In the remainder of this article I illustrate how

this view of embeddedness alters our theoretical and empirical approach

to the study of economic behavior. I first narrow the focus to the question

of trust and malfeasance in economic life and then use the "markets and

hierarchies" problem to illustrate the use of embeddedness ideas in ana-

lyzing this question.2

EMBEDDEDNESS, TRUST, AND MALFEASANCE IN

ECONOMIC LIFE

Since about 1970, there has been a flurry of interest among economists in

the previously neglected issues of trust and malfeasance. Oliver William-

son has noted that real economic actors engage not merely in the pursuit

of self-interest but also in "opportunism"-"self-interest seeking with

guile; agents who are skilled at dissembling realize transactional advan-

tages.3 Economic man ... is thus a more subtle and devious creature than

the usual self-interest seeking assumption reveals" (1975, p. 255).

2 There are many parallels between what are referred to here as the "undersocialized"

and "oversocialized" views of action and what Burt (1982, chap. 9) calls the "atom-

istic" and "normative" approaches. Similarly, the embeddedness approach proposed

here as a middle ground between under- and oversocialized views has an obvious

family resemblance to Burt's "structural" approach to action. My distinctions and

approach also differ from Burt's in many ways that cannot be quickly summarized;

these can be best appreciated by comparison of this article with his useful summary

(1982, chap. 9) and with the formal models that implement his conception (1982,

1983). Another approach that resembles mine in its emphasis on how social connec-

tions affect purposive action is Marsden's extension of James Coleman's theories of

collective action and decision to situations where such connections modify results that

would occur in a purely atomistic situation (Marsden 1981, 1983).

3Students of the sociology of sport will note that this proposition had been put forward

previously, in slightly different form, by Leo Durocher.

487

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

But this points out a peculiar assumption of modern economic theory,

that one's economic interest is pursued only by comparatively gentle-

manly means. The Hobbesian question-how it can be that those who

pursue their own interest do not do so mainly by force and fraud-is

finessed by this conception. Yet, as Hobbes saw so clearly, there is noth-

ing in the intrinsic meaning of "self-interest" that excludes force or fraud.

In part, this assumption persisted because competitive forces, in a self-

regulating market, could be imagined to suppress force and fraud. But

the idea is also embedded in the intellectual history of the discipline. In

The Passions and the Interests, Albert Hirschman (1977) shows that an

important strand of intellectual history from the time of Leviathan to that

of The Wealth of Nations consisted of the watering down of Hobbes's

problem of order by arguing that certain human motivations kept others

under control and that, in particular, the pursuit of economic self-interest

was typically not an uncontrollable "passion" but a civilized, gentle activ-

ity. The wide though implicit acceptance of such an idea is a powerful

example of how under- and oversocialized conceptions complement one

another: atomized actors in competitive markets so thoroughly internalize

these normative standards of behavior as to guarantee orderly transac-

tions.4

What has eroded this confidence in recent years has been increased

attention to the micro-level details of imperfectly competitive markets,

characterized by small numbers of participants with sunk costs and

"specific human capital" investments. In such situations, the alleged dis-

cipline of competitive markets cannot be called on to mitigate deceit, so

the classical problem of how it can be that daily economic life is not

riddled with mistrust and malfeasance has resurfaced.

In the economic literature, I see two fundamental answers to this prob-

lem and argue that one is linked to an undersocialized, and the other to an

oversocialized, conception of human action. The undersocialized account

is found mainly in the new institutional economics-a loosely defined

confederation of economists with an interest in explaining social institu-

tions from a neoclassical viewpoint. (See, e.g., Furubotn and Pejovich

1972; Alchian and Demsetz 1973; Lazear 1979; Rosen 1982; Williamson

1975, 1979, 1981; Williamson and Ouchi 1981.) The general story told by

members of this school is that social institutions and arrangements previ-

ously thought to be the adventitious result of legal, historical, social, or

political forces are better viewed as the efficient solution to certain eco-

nomic problems. The tone is similar to that of structural-functional

sociology of the 1940s to the 1960s, and much of the argumentation fails

the elementary tests of a sound functional explanation laid down by

4 I am indebted to an anonymous referee for pointing this out.

488

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

Robert Merton in 1947. Consider, for example, Schotter's view that to

understand any observed economic institution requires only that we "in-

fer the evolutionary problem that must have existed for the institution as

we see it to have developed. Every evolutionary economic problem re-

quires a social institution to solve it" (1981, p. 2).

Malfeasance is here seen to be averted because clever institutional

arrangements make it too costly to engage in, and these arrangements-

many previously interpreted as serving no economic function-are now

seen as having evolved to discourage malfeasance. Note, however, that

they do not produce trust but instead are a functional substitute for it.

The main such arrangements are elaborate explicit and implicit contracts

(Okun 1981), including deferred compensation plans and mandatory re-

tirement-seen to reduce the incentives for "shirking" on the job or ab-

sconding with proprietary secrets (Lazear 1979; Pakes and Nitzan

1982)-and authority structures that deflect opportunism by making po-

tentially divisive decisions by fiat (Williamson 1975). These conceptions

are undersocialized in that they do not allow for the extent to which

concrete personal relations and the obligations inherent in them discour-

age malfeasance, quite apart from institutional arrangements. Substitut-

ing these arrangements for trust results actually in a Hobbesian situation,

in which any rational individual would be motivated to develop clever

ways to evade them; it is then hard to imagine that everyday economic life

would not be poisoned by ever more ingenious attempts at deceit.

Other economists have recognized that some degree of trust must be

assumed to operate, since institutional arrangements alone could not en-

tirely stem force or fraud. But it remains to explain the source of this

trust, and appeal is sometimes made to the existence of a "generalized

morality." Kenneth Arrow, for example, suggests that societies, "in their

evolution have developed implicit agreements to certain kinds of regard

for others, agreements which are essential to the survival of the society or

at least contribute greatly to the efficiency of its working" (1974, p. 26; see

also Akerlof [1983] on the origins of "honesty").

Now one can hardly doubt the existence of some such generalized

morality; without it, you would be afraid to give the gas station attendant

a 20-dollar bill when you had bought only five dollars' worth of gas. But

this conception has the oversocialized characteristic of calling on a gener-

alized and automatic response, even though moral action in economic life

is hardly automatic or universal (as is well known at gas stations that

demand exact change after dark).

Consider a case where generalized morality does indeed seem to be at

work: the legendary (I hesitate to say apocryphal) economist who, against

all economic rationality, leaves a tip in a roadside restaurant far from

home. Note that this transaction has three characteristics that make it

489

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

somewhat unusual: (1) the transactors are previously unacquainted, (2)

they are unlikely to transact again, and (3) information about the activi-

ties of either is unlikely to reach others with whom they might transact in

the future. I argue that it is only in situations of this kind that the absence

of force and fraud can mainly be explained by generalized morality. Even

there, one migjht wonder how effective this morality would be if large

costs were incurred.

The embeddedness argument stresses instead the role of concrete per-

sonal relations and structures (or "networks") of such relations in generat-

ing trust and discouraging malfeasance. The widespread preference for

transacting with individuals of known reputation implies that few are

actually content to rely on either generalized morality or institutional

arrangements to guard against trouble. Economists have pointed out that

one incentive not to cheat is the cost of damage to one's reputation; but

this is an undersocialized conception of reputation as a generalized com-

modity, a ratio of cheating to opportunities for doing so. In practice, we

settle for such generalized information when nothing better is available,

but ordinarily we seek better information. Better than the statement that

someone is known to be reliable is information from a trusted informant

that he has dealt with that individual and found him so. Even better is

information from one's own past dealings with that person. This is better

information for four reasons: (1) it is cheap; (2) one trusts one's own in-

formation best-it is richer, more detailed, and known to be accurate; (3)

individuals with whom one has a continuing relation have an economic

motivation to be trustworthy, so as not to discourage future transactions;

and (4) departing from pure economic motives, continuing economic rela-

tions often become overlaid with social content that carries strong expec-

tations of trust and abstention from opportunism.

It would never occur to us to doubt this last point in more intimate

relations, which make behavior more predictable and thus close off some

of the fears that create difficulties among strangers. Consider, for ex-

ample, why individuals in a burning theater panic and stampede to the

door, leading to desperate results. Analysts of collective behavior long

considered this to be prototypically irrational behavior, but Roger Brown

(1965, chap. 14) points out that the situation is essentially an n-person

Prisoner's Dilemma: each stampeder is actually being quite rational given

the absence of a guarantee that anyone else will walk out calmly, even

though all would be better off if everyone did so. Note, however, that in

the case of the burning houses featured on the 11:00 P.M. news, we never

hear that everyone stampeded out and that family members trampled one

another. In the family, there is no Prisoner's Dilemma because each is

confident that the others can be counted on.

490

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

In business relations the degree of confidence must be more variable,

but Prisoner's Dilemmas are nevertheless often obviated by the strength

of personal relations, and this strength is a property not of the transactors

but of their concrete relations. Standard economic analysis neglects the

identity and past relations of individual transactors, but rational individ-

uals know better, relying on their knowledge of these relations. They are

less interested in general reputations than in whether a particular other

may be expected to deal honestly with them-mainly a function of

whether they or their own contacts have had satisfactory past dealings

with the other. One sees this pattern even in situations that appear, at

first glance, to approximate the classic higgling of a competitive market,

as in the Moroccan bazaar analyzed by Geertz (1979).

Up to this point, I have argued that social relations, rather than institu-

tional arrangements or generalized morality, are mainly responsible for

the production of trust in economic life. But I then risk rejecting one kind

of optimistic functionalism for another, in which networks of relations,

rather than morality or arrangements, are the structure that fulfills the

function of sustaining order. There are two ways to reduce this risk. One

is to recognize that as a solution to the problem of order, the embed-

dedness position is less sweeping than either alternative argument, since

networks of social relations penetrate irregularly and in differing degrees

in different sectors of economic life, thus allowing for what we already

know: distrust, opportunism, and disorder are by no means absent.

The second is to insist that while social relations may indeed often be a

necessary condition for trust and trustworthy behavior, they are not

sufficient to guarantee these and may even provide occasion and means

for malfeasance and conflict on a scale larger than in their absence. There

are three reasons for this.

1. The trust engendered by personal relations presents, by its very

existence, enhanced opportunity for malfeasance. In personal relations it

is common knowledge that "you always hurt the one you love"; that

person's trust in you results in a position far more vulnerable than that of

a stranger. (In the Prisoner's Dilemma, knowledge that one's cocon-

spirator is certain to deny the crime is all the more rational motive to

confess, and personal relations that abrogate this dilemma may be less

symmetrical than is believed by the party to be deceived.) This elemen-

tary fact of social life is the bread and butter of "confidence" rackets that

simulate certain relationships, sometimes for long periods, for concealed

purposes. In the business world, certain crimes, such as embezzling, are

simply impossible for those who have not built up relationships of trust

that permit the opportunity to manipulate accounts. The more complete

the trust, the greater the potential gain from malfeasance. That such

491

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

instances are statistically infrequent is a tribute to the force of personal

relations and reputation; that they do occur with regularity, however

infrequently, shows the limits of this force.

2. Force and fraud are most efficiently pursued by teams, and the

structure of these teams requires a level of internal trust-"honor among

thieves"-that usually follows preexisting lines of relationship. Elaborate

schemes for kickbacks and bid rigging, for example, can hardly be ex-

ecuted by individuals working alone, and when such activity is exposed it

is often remarkable that it could have been kept secret given the large

numbers involved. Law-enforcement efforts consist of finding an entry

point to the network of malfeasance-an individual whose confession

implicates others who will, in snowball-sample fashion, "finger" still

others until the entire picture is fitted together.

Both enormous trust and enormous malfeasance, then, may follow

from personal relations. Yoram Ben-Porath, in the functionalist style of

the new institutional economics, emphasizes the positive side, noting that

"continuity of relationships can generate behavior on the part of shrewd,

self-seeking, or even unscrupulous individuals that could otherwise be

interpreted as foolish or purely altruistic. Valuable diamonds change

hands on the diamond exchange, and the deals are sealed by a hand-

shake" (1980, p. 6). I might add, continuing in this positive vein, that this

transaction is possible in part because it is not atomized from other trans-

actions but embedded in a close-knit community of diamond merchants

who monitor one another's behavior closely. Like other densely knit net-

works of actors, they generate clearly defined standards of behavior easily

policed by the quick spread of information about instances of malfea-

sance. But the temptations posed by this level of trust are considerable,

and the diamond trade has also been the scene of numerous well-

publicized "insider job" thefts and of the notorious "CBS murders" of

April 1982. In this case, the owner of a diamond company was defrauding

a factoring concern by submitting invoices from fictitious sales. The

scheme required cooperation from his accounting personnel, one of whom

was approached by investigators and turned state's evidence. The owner

then contracted for the murder of the disloyal employee and her assistant;

three CBS technicians who came to their aid were also gunned down

(Shenon 1984).

3. The extent of disorder resulting from force and fraud depends very

much on how the network of social relations is structured. Hobbes exag-

gerated the extent of disorder likely in his atomized state of nature where,

in the absence of sustained social relations, one could expect only desul-

tory dyadic conflicts. More extended and large-scale disorder results from

coalitions of combatants, impossible without prior relations. We do not

generally speak of "war" unless actors have arranged themselves into two

492

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

sides, as the end result of various coalitions. This occurs only if there are

insufficient crosscutting ties, held by actors with enough links to both

main potential combatants to have a strong interest in forestalling con-

flict. The same is true in the business world, where conflicts are relatively

tame unless each side can escalate by calling on substantial numbers of

allies in other firms, as sometimes happens in attempts to implement or

forestall takeovers.

Disorder and malfeasance do of course occur also when social relations

are absent. This possibility is already entailed in my earlier claim that the

presence of such relations inhibits malfeasance. But the level of malfea-

sance available in a truly atomized social situation is fairly low; instances

can only be episodic, unconnected, small scale. The Hobbesian problem

is truly a problem, but in transcending it by the smoothing effect of social

structure, we also introduce the possibility of disruptions on a larger scale

than those available in the "state of nature."

The embeddedness approach to the problem of trust and order in eco-

nomic life, then, threads its way between the oversocialized approach of

generalized morality and the undersocialized one of impersonal, institu-

tional arrangements by following and analyzing concrete patterns of so-

cial relations. Unlike either alternative, or the Hobbesian position, it

makes no sweeping (and thus unlikely) predictions of universal order or

disorder but rather assumes that the details of social structure will deter-

mine which is found.

THE PROBLEM OF MARKETS AND HIERARCHIES

As a concrete application of the embeddedness approach to economic life,

I offer a critique of the influential argument of Oliver Williamson in

Markets and Hierarchies (1975) and later articles (1979, 1981; Williamson

and Ouchi 1981). Williamson asked under what circumstances economic

functions are performed within the boundaries of hierarchical firms

rather than by market processes that cross these boundaries. His answer,

consistent with the general emphasis of the new institutional economics,

is that the organizational form observed in any situation is that which

deals most efficiently with the cost of economic transactions. Those that

are uncertain in outcome, recur frequently, and require substantial

"transaction-specific investments"-for example, money, time, or energy

that cannot be easily transferred to interaction with others on different

matters-are more likely to take place within hierarchically organized

firms. Those that are straightforward, nonrepetitive, and require no

transaction-specific investment-such as the one-time purchase of stan-

dard equipment-will more likely take place between firms, that is,

across a market interface.

493

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

In this account, the former set of transactions is internalized within

hierarchies for two reasons. The first is "bounded rationality," the inabil-

ity of economic actors to anticipate properly the complex chain of contin-

gencies that might be relevant to long-term contracts. When transactions

are internalized, it is unnecessary to anticipate all such contingencies;

they can be handled within the firm's "governance structure" instead of

leading to complex negotiations. The second reason is "opportunism," the

rational pursuit by economic actors of their own advantage, with all

means at their command, including guile and deceit. Opportunism is

mitigated and constrained by authority relations and by the greater

identification with transaction partners that one allegedly has when both

are contained within one corporate entity than when they face one an-

other across the chasm of a market boundary.

The appeal to authority relations in order to tame opportunism consti-

tutes a rediscovery of Hobbesian analysis, though confined here to the

economic sphere. The Hobbesian flavor of Williamson's argument is sug-

gested by such statements as the following: "Internal organization is not

beset with the same kinds of difficulties that autonomous contracting

[among independent firms] experiences when disputes arise between the

parties. Although interfirm disputes are often settled out of court . . . this

resolution is sometimes difficult and interfirm-relations are often strained.

Costly litigation is sometimes unavoidable. Internal organization, by con-

trast . . . is able to settle many such disputes by appeal to fiat-an

enormously efficient way to settle instrumental differences" (1975, p. 30).

He notes that complex, recurring transactions require long-term relations

between identified individuals but that opportunism jeopardizes these

relations. The adaptations to changing market circumstances required

over the course of a relationship are too complex and unpredictable to be

encompassed in some initial contact, and promises of good faith are unen-

forceable in the absence of an overarching authority:

A general clause . . . that "I will behave responsibly rather than seek

individual advantage when an occasion to adapt arises," would, in the

absence of opportunism, suffice. Given, however, the unenforceability of

general clauses and the proclivity of human agents to make false and mis-

leading (self-disbelieved) statements, . . . both buyer and seller are strate-

gically situated to bargain over the disposition of any incremental gain

whenever a proposal to adapt is made by the other party. . . . Efficient

adaptations which would otherwise be made thus result in costly haggling

or even go unmentioned, lest the gains be dissipated by costly subgoal

pursuit. Governance structures which attenuate opportunism and otherwise

infuse confidence are evidently needed. [1979, pp. 241-42, emphasis mine]

This analysis entails the same mixture of under- and oversocialized

assumptions found in Leviathan. The efficacy of hierarchical power

within the firm is overplayed, as with Hobbes's oversocialized sovereign

494

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

state.5 The "market" resembles Hobbes's state of nature. It is the

atomized and anonymous market of classical political economy, minus

the discipline brought by fully competitive conditions-an under-

socialized conception that neglects the role of social relations among indi-

viduals in different firms in bringing order to economic life. Williamson

does acknowledge that this picture of the market is not always appropri-

ate: "Norms of trustworthy behavior sometimes extend to markets and

are enforced, in some degree, by group pressures.... Repeated personal

contacts across organizational boundaries support some minimum level of

courtesy and consideration between the parties.... In addition, expecta-

tions of repeat business discourage efforts to seek a narrow advantage in

any particular transaction.... Individual aggressiveness is curbed by the

prospect of ostracism among peers, in both trade and social circum-

stances. The reputation of a firm for fairness is also a business asset not to

be dissipated" (1975, pp. 106-8).

A wedge is opened here for analysis of social structural influences on

market behavior. But Williamson treats these examples as exceptions and

also fails to appreciate the extent to which the dyadic relations he de-

scribes are themselves embedded in broader systems of social relations. I

argue that the anonymous market of neoclassical models is virtually

nonexistent in economic life and that transactions of all kinds are rife with

the social connections described. This is not necessarily more the case in

transactions between firms than within-it seems plausible, on the con-

trary, that the network of social relations within the firm might be more

dense and long-lasting on the average than that existing between-but all

I need show here is that there is sufficient social overlay in economic

transactions across firms (in the "market," to use the term as in William-

son's dichotomy) to render dubious the assertion that complex market

transactions approximate a Hobbesian state of nature that can only be

resolved by internalization within a hierarchical structure.

In a general way, there is evidence all around us of the extent to which

business relations are mixed up with social ones. The trade associations

deplored by Adam Smith remain of great importance. It is well known

that many firms, small and large, are linked by interlocking directorates

so that relationships among directors of firms are many and densely knit.

That business relations spill over into sociability and vice versa, espe-

5 Williamson's confidence in the efficacy of hierarchy leads him, in discussing Chester

Barnard's "zone of indifference"-that realm within which employees obey orders

simply because they are indifferent about whether or not they do what is ordered-to

speak instead of a "zone of acceptance" (1975, p. 77), thus undercutting Barnard's

emphasis on the problematic nature of obedience. This transformation of Barnard's

usage appears to have originated with Herbert Simon, who does not justify it, noting

only that he "prefer[s] the term 'acceptance' " (Simon 1957, p. 12).

495

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

cially among business elites, is one of the best-documented facts in the

sociological study of business (e.g., Domhoff 1971; Useem 1979). In his

study of the extent to which litigation was used to settle disputes between

firms, Macaulay notes that disputes are "frequently settled without refer-

ence to the contract or potential or actual legal sanctions. There is a

hesitancy to speak of legal rights or to threaten to sue in these negotia-

tions.... Or as one businessman put it, 'You can settle any dispute if you

keep the lawyers and accountants out of it. They just do not understand

the give-and-take needed in business.' . . . Law suits for breach of con-

tract appear to be rare" (1963, p. 61). He goes on to explain that the

top executives of the two firms may know each other. They may sit together

on government or trade committees. They may know each other socially

and even belong to the same country club.... Even where agreement can

be reached at the negotiation stage, carefully planned arrangements may

create undesirable exchange relationships between business units. Some

businessmen object that in such a carefully worked out relationship one gets

performance only to the letter of the contract. Such planning indicates a

lack of trust and blunts the demands of friendship, turning a cooperative

venture into an antagonistic horse trade.... Threatening to turn matters

over to an attorney may cost no more money than postage or a telephone

call; yet few are so skilled in making such a threat that it will not cost some

deterioration of the relationship between the firms. [Pp. 63-64]

It is not only at top levels that firms are connected by networks of

personal relations, but at all levels where transactions must take place. It

is, for example, a commonplace in the literature on industrial purchasing

that buying and selling relationships rarely approximate the spot-market

model of classical theory. One source indicates that the "evidence consis-

tently suggests that it takes some kind of 'shock' to jolt the organizational

buying out of a pattern of placing repeat orders with a favored supplier or

to extend the constrained set of feasible suppliers. A moment's reflection

will suggest several reasons for this behavior, including the costs associ-

ated with searching for new suppliers and establishing new relationships,

the fact that users are likely to prefer sources, the relatively low risk

involved in dealing with known vendors, and the likelihood that the

buyer has established personal relationships that he values with represen-

tatives of the supplying firm" (Webster and Wind 1972, p. 15).

In a similar vein, Macaulay notes that salesmen "often know purchas-

ing agents well. The same two individuals may have dealt with each

other from five to 25 years. Each has something to give the other. Sales-

men have gossip about competitors, shortages and price increases to give

purchasing agents who treat them well" (1963, p. 63). Sellers who do not

satisfy their customers "become the subject of discussion in the gossip

exchanged by purchasing agents and salesmen, at meetings of purchasing

agents' associations and trade associations or even at country clubs or

496

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

social gatherings . . ." (p. 64). Settlement of disputes is eased by this

embeddedness of business in social relations: "Even where the parties

have a detailed and carefully planned agreement which indicates what is

to happen if, say, the seller fails to deliver on time, often they will never

refer to the agreement but will negotiate a solution when the problem

arises as if there never had been any original contract. One purchasing

agent expressed a common business attitude when he said, 'If something

comes up, you get the other man on the telephone and deal with the

problem. You don't read legalistic contract clauses at each other if you

ever want to do business again. One doesn't run to lawyers if he wants to

stay in business because one must behave decently"' (Macaulay 1963, p.

61).

Such patterns may be more easily noted in other countries, where they

are supposedly explained by "cultural" peculiarities. Thus, one journalist

recently asserted,

Friendships and longstanding personal connections affect business connec-

tions everywhere. But that seems to be especially true in Japan.... The

after-hours sessions in the bars and nightclubs are where the vital personal

contacts are established and nurtured slowly. Once these ties are set, they

are not easily undone. . . . The resulting tight-knit nature of Japanese

business society has long been a source of frustration to foreign companies

trying to sell products in Japan.... Chalmers Johnson, a professor at ...

Berkeley, believes that . .. the exclusive dealing within the Japanese indus-

trial groups, buying and selling to and from each other based on decades-

old relationships rather than economic competitiveness . . . is . . . a real

nontariff barrier [to trade between the United States and Japan]. [bohr

1982]

The extensive use of subcontracting in many industries also presents

opportunities for sustained relationships among firms that are not orga-

nized hierarchically within one corporate unit. For example, Eccles cites

evidence from many countries that in construction, when projects "are

not subject to institutional regulations which require competitive bidding

. . . relations between the general contractor and his subcontractors are

stable and continuous over fairly long periods of time and only infre-

quently established through competitive bidding. This type of 'quasi-

integration' results in what I call the 'quasifirm.' It is a preferred mode to

either pure market transactions or formal vertical integration" (1981, pp.

339-40). Eccles describes this "quasifirm" arrangement of extensive and

long-term relationships among contractors and subcontractors as an or-

ganizational form logically intermediate between the pure market and the

vertically integrated firm. I would argue, however, that it is not empiri-

cally intermediate, since the former situation is so rare. The case of

construction is closer to vertical integration than some other situations

where firms interact, such as buying and selling relations, since subcon-

497

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

tractors are physically located on the same site as the contractor and are

under his general supervision. Furthermore, under the usual fixed-price

contracts, there are "obvious incentives for shirking performance require-

ments" (Eccles 1981, p. 340).

Yet a hierarchical structure associated with the vertically integrated

firm does not arise to meet this "problem." I argue this is because the

long-term relations of contractors and subcontractors, as well as the em-

beddedness of those relations in a community of construction personnel,

generate standards of expected behavior that not only obviate the need

for but are superior to pure authority relations in discouraging malfea-

sance. Eccles's own empirical study of residential construction in Massa-

chusetts shows not only that subcontracting relationships are long term in

nature but also that it is very rare for a general contractor to employ more

than two or three subcontractors in a given trade, whatever number of

projects is handled in the course of a year (1981, pp. 349-5 1). This is true

despite the availability of large numbers of alternative subcontractors.

This phenomenon can be explained in part in investment terms-through

a "continuing association both parties can benefit from the somewhat

idiosyncratic investment of learning to work together" (Eccles 1981, p.

340)-but also must be related to the desire of individuals to derive

pleasure from the social interaction that accompanies their daily work, a

pleasure that would be considerably blunted by spot-market procedures

requiring entirely new and strange work partners each day. As in other

parts of economic life, the overlay of social relations on what may begin in

purely economic transactions plays a crucial role.

Some comments on labor markets are also relevant here. One advan-

tage that Williamson asserts for hierarchically structured firms over mar-

ket transactions is the ability to transmit accurate information about

employees. "The principal impediment to effective interfirm experience-

rating," he argues, "is one of communication. By comparison with the

firm, markets lack a rich and common rating language. The language

problem is particularly severe where the judgments to be made are highly

subjective. The advantages of hierarchy in these circumstances are espe-

cially great if those persons who are most familiar with a worker's charac-

teristics, usually his immediate supervisor, also do the experience-rating"

(1975, p. 78). But the notion that good information about the characteris-

tics of an employee can be transmitted only within firms and not between

can be sustained only by neglecting the widely variegated social network

of interaction that spans firms. Information about employees travels

among firms not only because personal relations exist between those in

each firm who do business with each other but also, as I have shown in

detail (Granovetter 1974), because the relatively high levels of interfirm

mobility in the United States guarantee that many workers will be reason-

498

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

ably well known to employees of numerous other firms that might require

and solicit their services. Furthermore, the idea that internal information

is necessarily accurate and acted on dispassionately by promotion proce-

dures keyed to it seems naive. To say, as Williamson does, that reliance

"on internal promotion has affirmative incentive properties because

workers can anticipate that differential talent and degrees of

cooperativeness will be rewarded" (1975, p. 78) invokes an ideal type of

promotion as reward-for-achievement that can readily be shown to have

only limited correspondence to existing internal labor markets (see

Granovetter 1983, pp. 40-51, for an extended analysis).

The other side of my critique is to argue that Williamson vastly overes-

timates the efficacy of hierarchical power ("fiat," in his terminology)

within organizations. He asserts, for example, that internal organizations

have a great auditing advantage: "An external auditor is typically con-

strained to review written records .... An internal auditor, by contrast,

has greater freedom of action. . . . Whereas an internal auditor is not a

partisan but regards himself and is regarded by others in mainly instru-

mental terms, the external auditor is associated with the 'other side' and

his motives are regarded suspiciously. The degree of cooperation received

by the auditor from the audited party varies accordingly. The external

auditor can expect to receive only perfunctory cooperation" (1975, pp.

29-30). The literature on intrafirm audits is sparse, but one thorough

account is that of Dalton, in Men Who Manage, for a large chemical

plant. Audits of parts by the central office were supposed to be conducted

on a surprise basis, but warning was typically surreptitiously given. The

high level of cooperation shown in these internal audits is suggested by

the following account: "Notice that a count of parts was to begin pro-

voked a flurry among the executives to hide certain parts and equipment

. . . materials not to be counted were moved to: 1) little-known and

inaccessible spots; 2) basements and pits that were dirty and therefore

unlikely to be examined; 3) departments that had already been inspected

and that could be approached circuitously while the counters were en

route between official storage areas and 4) places where materials and

supplies might be used as a camouflage for parts. . . . As the practice

developed, cooperation among the [department] chiefs to use each other's

storage areas and available pits became well organized and smoothly

functioning" (Dalton 1959, pp. 48-49).

Dalton's work shows brilliantly that cost accounting of all kinds is a

highly arbitrary and therefore easily politicized process rather than a

technical procedure decided on grounds of efficiency. He details this espe-

cially for the relationship between the maintenance department and vari-

ous production departments in the chemical plant; the department to

which maintenance work was charged had less to do with any strict time

499

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

accounting than with the relative political and social standing of depart-

ment executives in their relation to maintenance personnel. Furthermore,

the more aggressive department heads expedited their maintenance work

"by the use of friendships, by bullying and implied threats. As all the

heads had the same formal rank, one could say that an inverse relation

existed between a given officer's personal influence and his volume of

uncompleted repairs" (1959, p. 34). Questioned about how such practices

could escape the attention of auditors, one informant told Dalton, "If

Auditing got to snooping around, what the hell could they find out? And

if they did find anything, they'd know a damn sight better than to say

anything about it. . . . All those guys [department heads] have got lines

through Cost Accounting. That's a lot of bunk about Auditing being

independent" (p. 32).

Accounts as detailed and perceptive as Dalton's are sadly lacking for a

representative sample of firms and so are open to the argument that they

are exceptional. But similar points can be made for the problem of trans-

fer pricing-the determination of prices for products traded between

divisions of a single firm. Here Williamson argues that though the trading

divisions "may have profit-center standing, this is apt to be exercised in a

restrained way. . . . Cost-plus pricing rules, and variants thereof, pre-

clude supplier divisions from seeking the monopolistic prices [to] which

their sole source supply position might otherwise entitle them. In addi-

tion, the managements of the trading divisions are more susceptible to

appeals for cooperation" (1975, p. 29). But in an intensive empirical study

of transfer-pricing practices, Eccles, having interviewed nearly 150 man-

agers in 13 companies, concluded that no cost-based methods could be

carried out in a technically neutral way, since there is "no universal

criterion for what is cost. . . . Problems often exist with cost-based

methods when the buying division does not have access to the informa-

tion by which the costs are generated. . . . Market prices are especially

difficult to determine when internal purchasing is mandated and no exter-

nal purchases are made of the intermediate good.... There is no obvious

answer to what is a markup for profit . . ." (1982, p. 21). The political

element in transfer-pricing conflicts strongly affects whose definition of

"cost" is accepted: "In general, when transfer pricing practices are seen to

enhance one's power and status they will be viewed favorably. When they

do not, a countless number of strategic and other sound business reasons

will be found to argue for their inadequacy" (1982, p. 21; see also Eccles

1983, esp. pp. 26-32). Eccles notes the "somewhat ironic fact that many

managers consider internal transactions to be more difficult than external

ones, even though vertical integration is pursued for presumed advan-

tages" (1983, p. 28).

Thus, the oversocialized view that orders within a hierarchy elicit easy

500

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

obedience and that employees internalize the interests of the firm, sup-

pressing any conflict with their own, cannot stand scrutiny against these

empirical studies (or, for that matter, against the experience of many of us

in actual organizations). Note further that, as shown especially well in

Dalton's detailed ethnographic study, resistance to the encroachment of

organizational interests on personal or divisional ones requires an exten-

sive network of coalitions. From the viewpoint of management, these

coalitions represent malfeasance generated by teams; it could not be

managed at all by atomized individuals. Indeed, Dalton asserted that the

level of cooperation achieved by divisional chiefs in evading central au-

dits involved joint action "of a kind rarely, if ever, shown in carrying on

official activities . . ." (1959, p. 49).

In addition, the generally lower turnover of personnel characteristic of

large hierarchical firms, with their well-defined internal labor markets

and elaborate promotion ladders, may make such cooperative evasion

more likely. When many employees have long tenures, the conditions are

met for a dense and stable network of relations, shared understandings,

and political coalitions to be constructed. (See Homans 1950, 1974, for

the relevant social psychological discussions; and Pfeffer 1983, for a treat-

ment of the "demography of organizations.") James Lincoln notes, in this

connection, that in the ideal-typical Weberian bureaucracy, organizations

are "designed to function independently of the collective actions which

can be mobilized through [internal] interpersonal networks. Bureaucracy

prescribes fixed relationships among positions through which incumbents

flow, without, in theory, affecting organizational operations" (1982, p.

26). He goes on to summarize studies showing, however, that "when

turnover is low, relations take on additional contents of an expressive and

personal sort which may ultimately transform the network and change

the directions of the organization" (p. 26).

To this point I have argued that social relations between firms are more

important, and authority within firms less so, in bringing order to eco-

nomic life than is supposed in the markets and hierarchies line of thought.

A balanced and symmetrical argument requires attention to power in

"market" relations and social connections within firms. Attention to

power relations is needed lest my emphasis on the smoothing role of social

relations in the market lead me to neglect the role of these relations in the

conduct of conflict. Conflict is an obvious reality, ranging from well-

publicized litigation between firms to the occasional cases of "cutthroat

competition" gleefully reported by the business press. Since the effective

exercise of power between firms will prevent bloody public battles, we

can assume that such battles represent only a small proportion of actual

conflicts of interest. Conflicts probably become public only when the two

sides are fairly equally matched; recall that this rough equality was pre-

501

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

cisely one of Hobbes's arguments for a probable "war of all against all" in

the "state of nature." But when the power position of one firm is obvi-

ously dominant, the other is apt to capitulate early so as to cut its losses.

Such capitulation may require not even explicit confrontation but only a

clear understanding of what the other side requires (as in the recent

Marxist literature on "hegemony" in business life; see, e.g., Mintz and

Schwartz 1985).

Though the exact extent to which firms dominate other firms can be

debated, the voluminous literature on interlocking directorates, on the

role of financial institutions vis-a-vis industrial corporations, and on dual

economy surely provides enough evidence to conclude that power rela-

tions cannot be neglected. This provides still another reason to doubt that

the complexities that arise when formally equal agents negotiate with one

another can be resolved only by the subsumption of all parties under a

single hierarchy; in fact, many of these complexities are resolved by im-

plicit or explicit power relations among firms.

Finally, a brief comment is in order on the webs of social relations that

are well known from industrial and organizational sociology to be impor-

tant within firms. The distinction between the "formal" and the "infor-

mal" organization of the firm is one of the oldest in the literature, and it

hardly needs repeating that observers who assume firms to be structured

in fact by the official organization chart are sociological babes in the

woods. The connection of this to the present discussion is that insofar as

internalization within firms does result in a better handling of complex

and idiosyncratic transactions, it is by no means apparent that hierarchi-

cal organization is the best explanation. It may be, instead, that the effect

of internalization is to provide a focus (see Feld 1981) for an even denser

web of social relations than had occurred between previously indepen-

dent market entities. Perhaps this web of interaction is mainly what

explains the level of efficiency, be it high or low, of the new organiza-

tional form.

It is now useful to summarize the differences in explanation and predic-

tion between Williamson's markets and hierarchies approach and the

embeddedness view offered here. Williamson explains the inhibition of

"'opportunism" or malfeasance in economic life and the general existence

of cooperation and order by the subsumption of complex economic activ-

ity in hierarchically integrated firms. The empirical evidence that I cite

shows, rather, that even with complex transactions, a high level of order

can often be found in the "market"-that is, across firm boundaries-and

a correspondingly high level of disorder within the firm. Whether these

occur, instead of what Williamson expects, depends on the nature of

personal relations and networks of relations between and within firms. I

claim that both order and disorder, honesty and malfeasance have more

502

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

to do with structures of such relations than they do with organizational

form.

Certain implications follow for the conditions under which one may

expect to see vertical integration rather than transactions between firms

in a market. Other things being equal, for example, we should expect

pressures toward vertical integration in a market where transacting firms

lack a network of personal relations that connects them or where such a

network eventuates in conflict, disorder, opportunism, or malfeasance.

On the other hand, where a stable network of relations mediates complex

transactions and generates standards of behavior between firms, such

pressures should be absent.

I use the word "pressures" rather than predict that vertical integration

will always follow the pattern described in order to avoid the func-

tionalism implicit in Williamson's assumption that whatever organiza-

tional form is most efficient will be the one observed. Before we can make

this assumption, two further conditions must be satisfied: (i) well-defined

and powerful selection pressures toward efficiency must be operating,

and (ii) some actors must have the ability and resources to "solve" the

efficiency problem by constructing a vertically integrated firm.

The selection pressures that guarantee efficient organization of transac-

tions are nowhere clearly described by Williamson. As in much of the

new institutional economics, the need to make such matters explicit is

obviated by an implicit Darwinian argument that efficient solutions,

however they may originate, have a staying power akin to that enforced

by natural selection in the biological world. Thus it is granted that not all

business executives "accurately perceive their business opportunities and

faultlessly respond. Over time, however, those [vertical] integration

moves that have better rationality properties (in transaction cost and

scale-economy terms) tend to have better survival properties" (William-

son and Ouchi 1981, p. 389; see also Williamson 1981, pp. 573-74). But

Darwinian arguments, invoked in this cavalier fashion, careen toward a

Panglossian view of whatever institution is analyzed. The operation of

alleged selection pressures is here neither an object of study nor even a

falsifiable proposition but rather an article of faith.

Even if one could document selection pressures that made survival of

certain organizational forms more likely, it would remain to show how

such forms could be implemented. To treat them implicitly as mutations,

by analogy to biological evolution, merely evades the issue. As in other

functionalist explanations, it cannot be automatically assumed that the

solution to some problem is feasible. Among the resources required to

implement vertical integration might be some measure of market power,

access to capital through retained earnings or capital markets, and appro-

priate connections to legal or regulatory authorities.

503

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

Where selection pressures are weak (especially likely in the imperfect

markets claimed by Williamson to produce vertical integration) and re-

sources problematic, the social-structural configurations that I have out-

lined are still related to the efficiency of transaction costs, but no guaran-

tee can be given that an efficient solution will occur. Motives for

integration unrelated to efficiency, such as personal aggrandizement of

CEOs in acquiring firms, may in such settings become important.

What the viewpoint proposed here requires is that future research on

the markets-hierarchies question pay careful and systematic attention to

the actual patterns of personal relations by which economic transactions

are carried out. Such attention will not only better sort out the motives for

vertical integration but also make it easier to comprehend the various

complex intermediate forms between idealized atomized markets and

completely integrated firms, such as the quasi firm discussed above for

the construction industry. Intermediate forms of this kind are so inti-

mately bound up with networks of personal relations that any perspective

that considers these relations peripheral will fail to see clearly what "or-

ganizational form" has been effected. Existing empirical studies of indus-

trial organization pay little attention to patterns of relations, in part

because relevant data are harder to find than those on technology and

market structure but also because the dominant economic framework

remains one of atomized actors, so personal relations are perceived as

frictional in effect.

DISCUSSION

In this article, I have argued that most behavior is closely embedded in

networks of interpersonal relations and that such an argument avoids the

extremes of under- and oversocialized views of human action. Though I

believe this to be so for all behavior, I concentrate here on economic

behavior for two reasons: (i) it is the type-case of behavior inadequately

interpreted because those who study it professionally are so strongly com-

mitted to atomized theories of action; and (ii) with few exceptions, sociol-

ogists have refrained from serious study of any subject already claimed by

neoclassical economics. They have implicitly accepted the presumption of

economists that "market processes" are not suitable objects of sociological

study because social relations play only a frictional and disruptive role,

not a central one, in modern societies. (Recent exceptions are Baker 1983;

Burt 1983; and White 1981.) In those instances in which sociologists study

processes where markets are central, they usually still manage to avoid

their analysis. Until recently, for example, the large sociological literature

on wages was cast in terms of "income attainment," obscuring the labor

504

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

market context in which wages are set and focusing instead on the back-

ground and attainment of individuals (see Granovetter 1981 for an ex-

tended critique). Or, as Stearns has pointed out, the literature on who

controls corporations has implicitly assumed that analysis must be at the

level of political relations and broad assumptions about the nature of

capitalism. Even though it is widely admitted that how corporations

acquire capital is a major determinant of control, most relevant research

"since the turn of the century has eliminated that [capital] market as an

objective of investigation" (1982, pp. 5-6). Even in organization theory,

where considerable literature implements the limits placed on economic

decisions by social structural complexity, little attempt has been made to

demonstrate the implications of this for the neoclassical theory of the firm

or for a general understanding of production or such macroeconomic

outcomes as growth, inflation, and unemployment.

In trying to demonstrate that all market processes are amenable to

sociological analysis and that such analysis reveals central, not periph-

eral, features of these processes, I have narrowed my focus to problems of

trust and malfeasance. I have also used the "market and hierarchies"

argument of Oliver Williamson as an illustration of how the embed-

dedness perspective generates different understandings and predictions

from that implemented by economists. Williamson's perspective is itself

"revisionist" within economics, diverging from the neglect of institutional

and transactional considerations typical of neoclassical work. In this

sense, it may appear to have more kinship to a sociological perspective

than the usual economic arguments. But the main thrust of the "new

institutional economists" is to deflect the analysis of institutions from

sociological, historical, and legal argumentation and show instead that

they arise as the efficient solution to economic problems. This mission and

the pervasive functionalism it implies discourage the detailed analysis of

social structure that I argue here is the key to understanding how existing

institutions arrived at their present state.

Insofar as rational choice arguments are narrowly construed as re-

ferring to atomized individuals and economic goals, they are inconsistent

with the embeddedness position presented here. In a broader formulation

of rational choice, however, the two views have much in common. Much

of the revisionist work by economists that I criticize above in my discus-

sion of over- and undersocialized conceptions of action relies on a strategy

that might be called "psychological revisionism"-an attempt to reform

economic theory by abandoning an absolute assumption of rational deci-

sion making. This strategy has led to Leibenstein's "selective rationality"

in his arguments on "X-inefficiency" (1976), for example, and to the

claims of segmented labor-market theorists that workers in different mar-

505

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

ket segments have different kinds of decision-making rules, rational

choice being only for upper-primary (i.e., professional, managerial, tech-

nical) workers (Piore 1979).

I suggest, in contrast, that while the assumption of rational action must

always be problematic, it is a good working hypothesis that should not

easily be abandoned. What looks to the analyst like nonrational behavior

may be quite sensible when situational constraints, especially those of

embeddedness, are fully appreciated. When the social situation of those

in nonprofessional labor markets is fully analyzed, their behavior looks

less like the automatic application of "cultural" rules and more like a

reasonable response to their present situation (as, e.g., in the discussion of

Liebow 1966). Managers who evade audits and fight over transfer pricing

are acting nonrationally in some strict economic sense, in terms of a firm's

profit maximization; but when their position and ambitions in intrafirm

networks and political coalitions are analyzed, the behavior is easily in-

terpreted.

That such behavior is rational or instrumental is more readily seen,

moreover, if we note that it aims not only at economic goals but also at

sociability, approval, status, and power. Economists rarely see such goals

as rational, in part on account of the arbitrary separation that arose

historically, as Albert Hirschman (1977) points out, in the 17th and 18th

centuries, between the "passions" and the "interests," the latter connoting

economic motives only. This way of putting the matter has led economists

to specialize in analysis of behavior motivated only by "interest" and to

assume that other motives occur in separate and nonrationally organized

spheres; hence Samuelson's much-quoted comment that "many econo-

mists would separate economics from sociology upon the basis of rational

or irrational behavior" (1947, p. 90). The notion that rational choice is

derailed by social influences has long discouraged detailed sociological

analysis of economic life and led revisionist economists to reform eco-

nomic theory by focusing on its naive psychology. My claim here is that

however naive that psychology may be, this is not where the main

difficulty lies-it is rather in the neglect of social structure.

Finally, I should add that the level of causal analysis adopted in the

embeddedness argument is a rather proximate one. I have had little to say

about what broad historical or macrostructural circumstances have led

systems to display the social-structural characteristics they have, so I

make no claims for this analysis to answer large-scale questions about the

nature of modern society or the sources of economic and political change.

But the focus on proximate causes is intentional, for these broader ques-

tions cannot be satisfactorily addressed without more detailed under-

standing of the mechanisms by which sweeping change has its effects. My

claim is that one of the most important and least analyzed of such mecha-

506

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

nisms is the impact of such change on the social relations in which eco-

nomic life is embedded. If this is so, no adequate link between macro- and

micro-level theories can be established without a much fuller understand-

ing of these relations.

The use of embeddedness analysis in explicating proximate causes of

patterns of macro-level interest is well illustrated by the markets and

hierarchies question. The extent of vertical integration and the reasons

for the persistence of small firms operating through the market are not

only narrow concerns of industrial organization; they are of interest to all

students of the institutions of advanced capitalism. Similar issues arise in

the analysis of "dual economy," dependent development, and the nature

of modern corporate elites. But whether small firms are indeed eclipsed

by giant corporations is usually analyzed in broad and sweeping mac-

ropolitical or macroeconomic terms, with little appreciation of proximate

social structural causes.

Analysts of dual economy have often suggested, for example, that the

persistence of large numbers of small firms in the "periphery" is explained

by large corporations' need to shift the risks of cyclical fluctuations in

demand or of uncertain R & D activities; failures of these small units will

not adversely affect the larger firms' earnings. I suggest here that small

firms in a market setting may persist instead because a dense network of

social relations is overlaid on the business relations connecting such firms

and reduces pressures for integration. This does not rule out risk shifting

as an explanation with a certain face validity. But the embeddedness

account may be more useful in explaining the large number of small

establishments not characterized by satellite or peripheral status. (For a

discussion of the surprising extent of employment in small establish-

ments, see Granovetter 1984.) This account is restricted to proximate

causes: it logically leads to but does not answer the questions why, when,

and in what sectors does the market display various types of social struc-

ture. But those questions, which link to a more macro level of analysis,

would themselves not arise without a prior appreciation of the impor-

tance of social structure in the market.

The markets and hierarchies analysis, important as it may be, is pre-

sented here mainly as an illustration. I believe the embeddedness argu-

ment to have very general applicability and to demonstrate not only that

there is a place for sociologists in the study of economic life but that their

perspective is urgently required there. In avoiding the analysis of phe-

nomena at the center of standard economic theory, sociologists have un-

necessarily cut themselves off from a large and important aspect of social

life and from the European tradition-stemming especially from Max

Weber-in which economic action is seen only as a special, if important,

category of social action. I hope to have shown here that this Weberian

507

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

program is consistent with and furthered by some of the insights of mod-

ern structural sociology.

REFERENCES

Akerlof, George. 1983. "Loyalty Filters." American Economic Review 73 (1): 54-63.

Alchian, Armen, and Harold Demsetz. 1973. "The Property Rights Paradigm." Jour-

nal of Economic History 33 (March): 16-27.

Arrow, Kenneth. 1974. The Limits of Organization. New York: Norton.

Baker, Wayne. 1983. "Floor Trading and Crowd Dynamics." In Social Dynamics of

Financial Markets, edited by Patricia Adler and Peter Adler. Greenwich, Conn.: JAI.

Becker, Gary. 1976. The Economic Approach to Human Behavior. Chicago: Univer-

sity of Chicago Press.

Ben-Porath, Yoram. 1980. "The F-Connection: Families, Friends and Firms in the

Organization of Exchange." Population and Development Review 6 (1): 1-30.

Bowles, Samuel, and Herbert Gintis. 1975. Schooling in Capitalist America. New

York: Basic.

Brown, Roger. 1965. Social Psychology. New York: Free Press.

Burt, Ronald. 1982. Toward a Structural Theory of Action. New York: Academic

Press.

. 1983. Corporate Profits and Cooptation. New York: Academic Press.

Cole, Robert. 1979. Work, Mobility and Participation: A Comparative Study of Amer-

ican and Japanese Industry. Berkeley and Los Angeles: University of California

Press.

Dalton, Melville. 1959. Men Who Manage. New York: Wiley.

Doeringer, Peter, and Michael Piore. 1971. Internal Labor Markets and Manpower

Analysis. Lexington, Mass.: Heath.

Domhoff, G. William. 1971. The Higher Circles. New York: Random House.

Duesenberry, James. 1960. Comment on "An Economic Analysis of Fertility." In

Demographic and Economic Change in Developed Countries, edited by the Univer-

sities-National Bureau Committee for Economic Research. Princeton, N.J.: Prince-

ton University Press.

Eccles, Robert. 1981. "The Quasifirm in the' Construction Industry." Journal of Eco-

nomic Behavior and Organization 2 (December): 335-57.

. 1982. "A Synopsis of Transfer Pricing: An Analysis and Action Plan." Mim-

eographed. Cambridge, Mass.: Harvard Business School.

.1983. "Transfer Pricing, Fairness and Control." Working Paper no. HBS 83-

167. Cambridge, Mass.: Harvard Business School. Reprinted in Harvard Business

Review (in press).

Feld, Scott. 1981. "The Focused Organization of Social Ties." American Journal of

Sociology 86 (5): 1015-35.

Fine, Gary, and Sherryl Kleinman. 1979. "Rethinking Subculture: An Interactionist

Analysis." American Journal of Sociology 85 (July): 1-20.

Furubotn, E., and S. Pejovich. 1972. "Property Rights and Economic Theory: A

Survey of Recent Literature." Journal of Economic Literature 10 (3): 1137-62.

Geertz, Clifford. 1979. "Suq: The Bazaar Economy in Sefrou." Pp. 123-225 in Mean-

ing and Order in Moroccan Society, edited by C. Geertz, H. Geertz, and L. Rosen.

New York: Cambridge University Press.

Granovetter, Mark. 1974. Getting a Job: A Study of Contacts and Careers. Cam-

bridge, Mass.: Harvard University Press.

. 1981. "Toward a Sociological Theory of Income Differences." Pp. 11-47 in

Sociological Perspectives on Labor Markets, edited by Ivar Berg. New York: Aca-

demic Press.

508

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

Embeddedness

. 1983. "Labor Mobility, Internal Markets and Job-Matching: A Comparison of

the Sociological and Economic Approaches." Mimeographed.

. 1984. "Small Is Bountiful: Labor Markets and Establishment Size." American

Sociological Review 49 (3): 323-34.

Hirschman, Albert. 1977. The Passions and the Interests. Princeton, N.J.: Princeton

University Press.

. 1982. "Rival Interpretations of Market Society: Civilizing, Destructive or

Feeble?" Journal of Economic Literature 20 (4): 1463-84.

Homans, George. 1950. The Human Group. New York: Harcourt Brace & Co.

. 1974. Social Behavior. New York: Harcourt Brace Jovanovich.

Lazear, Edward. 1979. "Why Is There Mandatory Retirement?" Journal of Political

Economy 87 (6): 1261-84.

Leibenstein, Harvey. 1976. Beyond Economic Man. Cambridge, Mass.: Harvard

University Press.

Liebow, Elliot. 1966. Tally's Corner. Boston: Little, Brown.

Lincoln, James. 1982. "Intra- (and Inter-) Organizational Networks." Pp. 1-38 in

Research in the Sociology of Organizations, vol. 1. Edited by S. Bacharach. Green-

wich, Conn.: JAI.

Lohr, Steve. 1982. "When Money Doesn't Matter in Japan." New York Times (Decem-

ber 30).

Macaulay, Stewart. 1963. "Non-Contractual Relations in Business: A Preliminary

Study." American Sociological Review 28 (1): 55-67.

Marsden, Peter. 1981. "Introducing Influence Processes into a System of Collective

Decisions." American Journal of Sociology 86 (May): 1203-35.

.1983. "Restricted Access in Networks and Models of Power." American Jour-

nal of Sociology 88 (January): 686-17.

Merton, Robert. 1947. "Manifest and Latent Functions." Pp. 19-84 in Social Theory

and Social Structure. New York: Free Press.

Mintz, Beth, and Michael Schwartz. 1985. The Power Structure of American Busi-

ness. Chicago: University of Chicago Press.

North, D., and R. Thomas. 1973. The Rise of the Western World. Cambridge: Cam-

bridge University Press.

Okun, Arthur. 1981. Prices and Quantities. Washington, D.C.: Brookings.

Pakes, Ariel, and S. Nitzan. 1982. "Optimum Contracts for Research Personnel,

Research Employment and the Establishment of 'Rival' Enterprises." NBER Work-

ing Paper no. 871. Cambridge, Mass.: National Bureau of Economic Research.

Parsons, Talcott. 1937. The Structure of Social Action. New York: Macmillan.

Pfeffer, Jeffrey. 1983. "Organizational Demography." In Research in Organizational

Behavior, vol. 5. Edited by L. L. Cummings and B. Staw. Greenwich, Conn.: JAI.

Phelps Brown, Ernest Henry. 1977. The Inequality of Pay. Berkeley: University of

California Press.

Piore, Michael. 1975. "Notes for a Theory of Labor Market Stratification." Pp. 125-50

in Labor Market Segmentation, edited by R. Edwards, M. Reich, and D. Gordon.

Lexington, Mass.: Heath.

, ed. 1979. Unemployment and Inflation. White Plains, N.Y.: Sharpe.

Polanyi, Karl. 1944. The Great Transformation. New York: Holt, Rinehart.

Polanyi, Karl, C. Arensberg, and H. Pearson. 1957. Trade and Market in the Early

Empires. New York: Free Press.

Popkin, Samuel. 1979. The Rational Peasant. Berkeley and Los Angeles: University of

California Press.

Rosen, Sherwin. 1982. "Authority, Control and the Distribution of Earnings." Bell

Journal of Economics 13 (2): 311-23.

Samuelson, Paul. 1947. Foundations of Economic Analysis. Cambridge, Mass.: Har-

vard University Press.

509

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms

American Journal of Sociology

Schneider, Harold. 1974. Economic Man: The Anthropology of Economics. New

York: Free Press.

Schotter, Andrew. 1981. The Economic Theory of Social Institutions. New York:

Cambridge University Press.

Scott, James. 1976. The Moral Economy of the Peasant. New Haven, Conn.: Yale

University Press.

Shenon, Philip. 1984. "Margolies Is Found Guilty of Murdering Two Women." New

York Times (June 1).

Simon, Herbert. 1957. Administrative Behavior. Glencoe, Ill.: Free Press.

Smith, Adam. (1776) 1979. The Wealth of Nations. Edited by Andrew Skinner. Balti-

more: Penguin.

Stearns, Linda. 1982. "Corporate Dependency and the Structure of the Capital Mar-

ket: 1880-1980." Ph.D. dissertation, State University of New York at Stony Brook.

Thompson, E. P. 1971. "The Moral Economy of the English Crowd in the Eighteenth

Century." Past and Present 50 (February): 76-136.

Useem, Michael. 1979. "The Social Organization of the American Business Elite and

Participation of Corporation Directors in the Governance of American Institutions."

American Sociological Review 44:553-72.

Webster, Frederick, and Yoram Wind. 1972. Organizational Buying Behavior. En-

glewood Cliffs, N.J.: Prentice-Hall.

White, Harrison C. 1981. "Where Do Markets Come From?" American Journal of

Sociology 87 (November): 517-47.

Williamson, Oliver. 1975. Markets and Hierarchies. New York: Free Press.

. 1979. "Transaction-Cost Economics: The Governance of Contractual Rela-

tions." Journal of Law and Economics 22 (2): 233-61.

. 1981. "The Economics of Organization: The Transaction Cost Approach."

American Journal of Sociology 87 (November): 548-77.

Williamson, Oliver, and William Ouchi. 1981. "The Markets and Hierarchies and

Visible Hand Perspectives." Pp. 347-70 in Perspectives on Organizational Design

and Behavior, edited by Andrew Van de Ven and William Joyce. New York: Wiley.

Wrong, Dennis. 1961. "The Oversocialized Conception of Man in Modern Sociology."

American Sociological Review 26 (2): 183-93.

510

This content downloaded from 128.95.71.166 on Thu, 28 Sep 2017 05:52:41 UTC

All use subject to http://about.jstor.org/terms