Desarrollo de las actividades de enseñanza-aprendizaje.

The formality of institutions as coordination mechanisms in dilemma situations is a basic condition for the emergence of large scale organisations, specialisation and division of labour (Noteboom, 2006). As demonstrated above, the personal character of informal institutions and

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its elaborate interaction processes pose a limit to the size of groups, which face the threat of collapse in the event of overexpansion. The competitive advantage of formal institutions is their universal character. The rules of the game are set up ex ante and information about their structure is available to everyone so that decisions based on formal institutions are predictable and can be anticipated by each actor before entering the game (Knack and Keefer, 1997; Sobel, 2002). The universality implies a high degree of anonymity and the predictability requires rigidity of decisions to be enforced. The perceived anonymity and the resulting lack of identification with the organisation can lead to low loyalty towards the group and inferior rates of cooperation. What is called “the crowding-out effect” observes increasing opportunism and decreasing willingness of individuals to contribute to the public good, if rules are formalised, exchange is monetarised and through that intrinsic motivations to cooperate vanish. Incentive policies that were initially designed to motivate individuals to contribute to a public good unexpectedly show the reverse effect of falling participation and higher rates of free-riding. Where goods were previously supplied as a donation by citizens and then the provider suddenly got compensated in monetary terms, the extrinsic motivation failed and contribution rates collapsed (Titmuss and Oakley, 1997). The premise for the design of formal and universal regulations overemphasises the selfishness of the homo economicus and ignores altruism as a motivation for human action. As interaction becomes formalised and anonymous the predicted egoism of rational and selfish homo economicus becomes a self-fulfilling prophecy. The formalisation of sanctioning institutions, monetarisation and therefore anonymisation of transactions, results in behaviour which is called the framing effect in experimental research. In the presence of rules and strong sanctioning mechanisms participants start to perceive the game as a business situation in which individual profits are to be maximised. In games lacking such extrinsic incentives, game situations are considered as one in which people seek to cooperate. Despite their

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expected coordinating function institutions can have the perverse effect of stimulating selfishness and opportunistic behaviour. Experiments have demonstrated that trust in other actors eroded where participants had to repeat games without formal sanctions after getting used to sanctions in previous rounds. In the control-group which had to interact without sanctions from the outset trust did not vanish in the later rounds. In this study participants’ willingness to trust others and cooperate was undermined by the type of institutions and sanctioning mechanisms. This crowding out of benevolent behaviour through institutions is referred to as the dark side of sanctions (Biel, 2008). In business situations personal or relational governance and formal contracts are considered substitutes. If mutual trust exists, no specific contracts are required; if perfect contracts cover every aspect of interaction no trust is necessary. But the formality of agreements is considered to have an impact on the perceived trustworthiness of transaction partners. According to Goshal and Moran (1996) the application of formal contracts signalises distrust towards the other party:

The use of rational control signals that they are neither trusted nor trustworthy to behave appropriately without such controls... The situation when the use of surveillance, monitoring and authority led to management’s distrusts of employees and perceptions of an increased need for more surveillance and control. (Goshal and Moran, 1996: 24)

Macauley noted that contracts are not only not required in many instances but their application may even have undesirable outcomes. “Detailed negotiated contracts can get in the way of creating good exchange relationships between business units.” (Macauley, 1963: 39) According to Macauley some companies deliberately avoid the use of contracts because it “indicates a lack of trust and blunts the demands of friendship, turning a cooperative venture into an antagonistic horsetrade.” (Macauley, 1963: 39) Apart from formal institutions money is a crucial element of exchange processes by which interaction in modern societies is shaped.

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Just like formal institutions money is an instrument characterized by universality and anonymity which allows transactions with infinite number of actors without the coordination costs which make barter an inefficient process compared to monetarised exchange. Similar to the crowding out effect of the formalisation of contracts, transactions based on money differ structurally from direct exchange of goods and impact the behaviour of individuals. Economists’ presumption of neutral money, which considers money simply an exchange mechanism which expresses values and has no impact on the exchange process itself, has been thrown into doubt by Georg Simmel (2009). In the “philosophy of money” Simmel argues that money is becoming an end in itself and that it changes the perception of the goods exchanged so that it impacts on the transaction, which it is only supposed to facilitate. Simmel claims that money not only is relation, in the sense that it makes exchange goods comparable and reduces informational complexity, but that “money has relation”. With this internal relation of money Simmel argues that the exchange mechanism is becoming an end in itself instead of merely reflecting the value of a good. Versachlichung or objectification is a central issue of the process of monetarisation and modernity. Objectification describes the change of the nature of relations between individuals, caused by monetarisation, towards a materialistic, opportunistic and profit-seeking character of human interaction. Demonstrating the effect of institutions and exchange mechanisms on social interaction shows that different institutional frameworks trigger different types of cooperation. It is not simply the question of more or less cooperation facilitated through the quality of institutions but also a structural difference of the type of cooperation which each system of coordination mechanisms allows to emerge. (Simmel, 2009)

107 3.12 Conclusion

This chapter has connected informal institutions to insights from sociology, cultural psychology and experimental research and identified the ambiguities of this social coordination mechanism. The internal structure of informal institutions, which require elaborate face to face interaction between actors, limits the number of possible interaction partners to be integrated into a group and so imposes opportunity costs on actors. The danger of informal relations developing into harmful structures of nepotism, cronyism and corruption has been discussed. Despite the scepticism of neoclassical economics, informal institutions are vital for collective action in some environments, particularly in collectivist societies where the formalisation of structures might lead to perverse effects and crowd out existing bases for cooperation. In this chapter the negative and limiting effects of informal institutions as well as their superiority under certain conditions have been analysed and discussed to provide a differentiated picture of informality. An understanding of the requirement for informal institutions is essential to prevent crowding out effects through institutional reforms. Furthermore this chapter has introduced the concepts of trust and social capital and reviewed the abundant literature dealing with these two categories and identified definitions to be applied by this research.

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