ISP (UMR CNRS 7220) UFR STAPS Université Paris Nanterre, France

The new institutionalism incorporates a number of theoretical approaches that deal with the analysis of the relationship between individual action and institutional frameworks (Finke 2004: 3).1 Although the roots of new institutionalism lie in economics, advances in interdisciplinary research directed at understanding and explaining institutions and human interaction has seen its application in political science, anthropology and sociology (Finke 2004 and Nee 1998).2 The new institutionalism in political science has stressed formal norms and their monitoring by third-party enforcers and the state (Nee 1998: 2). Before discussing these deeply contextual norms and the role of these third-party enforcers, I define and clarify some of the basic concepts that I will use throughout this work.

2.1.1 Institutions and Organisations

At the core of new institutionalism is the study of institutions, defined as “... the rules of the game in a society ... the humanly devised constraints that shape human interaction.... they structure incentives in human exchanges, whether political, social or economic” (North 1990: 3). Institutions reduce human uncertainty in human relations and specify limits of acceptable action, in the way that the rules of a game specify the structure within which the players are free to pursue their strategic moves using pieces that have specific roles and status positions (Nee 1998: 8). Institutions comprise everyday norms of expected behaviour embodying the interests and preferences of a group or a community, family and kin; they also encompass complex economic, social and political institutions like markets, authorities and legal systems. (Finke 2004: 4; and Nee 1998: 8). Institutions thus incorporate not only sets of regulations and norms, but also their enforcement and sanctioning of the individual actors in case of breech or violation of these (Finke 2004: 4). Institutions can be both formal and informal, with the latter understood as non-codified institutions that are nevertheless acknowledged as binding, with a set of non-codified sanctions in case of breech or violation (Finke 2004: 4). Family members, relatives, friends and acquaintances monitor informal norms, while the state formally monitors the legal rules (Nee 1998: 8, see also Knight 1992: 171). It is important to note here that for the analyses to follow social groups will be regarded as institutional frameworks because, apart from being groups of individuals, they also

1 _{For the theoretical section, I will mainly adopt the structure and order of concepts applied by Finke (2004) in} his first chapter on theory. I will adapt and incorporate relevant concepts from other sources when necessary. 2 _{For a detailed overview of works on new institutionalism see March and Olsen (1983), Hechter et. al. (1990)} and Powell and Dimaggio (2012); for the sources of new institutionalism Nee (1998); and for institutional theory in political science Knight (1992) and Peter (2011).

48

constitute a set of guidelines for proper behaviour both within and outside their boundaries (cf. Finke 2014).

A second central concept in the new institutionalism is that of organisation (Finke 2004: 4). In his book Institutions and social conflict, Knight (1992) defines organisations as

collective actors subject to institutional constraints, with an internal structure and an institutional framework governing the interactions of those persons who constitute the organisation (1992: 3). Various entities, such as a university, a church, a trade union or a firm, can be conceptualised as both institutions and organisations (Ibid; see also Finke 2004: 4). These organisations act collectively for furthering the common interests of their members and the members are motivated not only by economic incentives, but also by social incentives, like a desire to win prestige or respect and to contribute to the advancement of the groups’ interests (see Olson 1965: 60).

2.1.2 Social norms, preferences and conflict

From a behavioural point of view, social institutions are arenas where expectations regarding human interactions are established and social relations are maintained. Since social norms are the foundation of social life, they govern the expectations and relationships that lay the basis of how individuals act in their everyday lives (Knight and Ensminger1998: 105). Norms are implicit or explicit rules of expected behaviour that embody the interests and preferences of members of a close-knit group or a community (Nee 1998: 8). Norms establish the structures for social interactions, allowing the participants of social institutions to gain the benefit of joint activity by determining ways for the distribution of the benefits of social life (Knight and Ensminger 1998: 105 and Knight 1992: 22). Norms are the property of a social system, are collectively maintained and members of the group share the benefits gained by conforming. From this perspective, norms can be understood as a form of social capital or a collective good (Nee 1998: 8, Coleman 1990: 310).3

Norms affect social behaviour and social institutions affect the distribution of benefits from the numerous interactions that constitute social life. Although there is considerable variation across societies and communities at one particular time regarding the gains from these institutions, the distributional consequences for all the actors involved are very

3 _{The essence of social capital in this context can best be captured by Ostrom who defines it as “... shared} knowledge, understandings, norms, rules and expectations about patterns of interactions that groups of individuals bring to a recurrent activity” (2001: 176). The individuals who are part of this network would then derive benefits from these norms (Nee 1998: 9).

49

important (Knight 1992: 40).4 This implies that the institutions are a by-product of substantive conflicts over the distributions inherent in social outcomes. In simple words, the main goal of those who develop the institutional rules is to gain strategic advantage over other actors, and the essential content of those rules generally reflects distributional concerns (Ibid.). The rational choice theorists have produced a number of accounts of the evolution of social norms (Knight and Ensimger 1998: 105). Now each starts from the premise that social actors pursue some set of preferences in a rational way – seeking to achieve their most preferred outcome under certain constraints (Ibid: 106, see also Finke 2000: 5-8).5

The challenge arises when one directs attention to the factors that influence the capacities of the actors (to determine the substantive content of institutional rules, introducing the asymmetries of power in the community (Knight 1992: 41). There are rarely ever institutions, formal or informal, where all participants are on an equal footing, and therefore power positions matter. Knight suggests the following working definition of power: “To exercise power over someone or some group is to affect by some means the alternatives available to that person or group”(Ibid.). Possession of influence and power in institutions is

often a strong incentive for groups and for individual actors, as it is power that decides the benefits or advantages that they might gain in various forms – the distributional consequences for the other actors involved. Knight and Ensminger (1998) provide explanations of human behaviour grounded in rational decision-making that go beyond a narrow focus on economic interests, incorporating power asymmetries, distributional consequences and ideological motivations. They present a bargaining framework to analyse social conflict of preferences, which I will discuss in detail in Section 2.2. For my analysis, I rely primarily on their theoretical assumptions in explaining the incentives behind the behaviour of social actors within the operational spheres of MFIs.

2.1.3 Norm Compliance

One view of why individuals adhere to norms is that norms are rules that structure strategic behaviour. Individuals comply because it is in their self-interest to do so (Coleman 1990). From a different perspective, Bourdieu (1977) explains norm compliance as the appropriate form of behaviour in a specific context even when it is not in the narrow self- interest of the individual to do so. The two views can be reconciled if acting according to the

4 _{Distributional consequences here are not to be understood in economic terms only; they also encompass other} collective benefits/ elements that the institutions might have to offer.

5 _{This rests on the principle of action that defines rationality as “maximisation of utility”, that is, that the agent} who carries out an action seeks to realise maximum value possible with the least cost or effort (see Coleman 1990: 510).

50

dictates of a rule is a means of simplifying decision making or a way to give in to social pressure that may be indirectly beneficial for the individual (Knight 1992: 15 and Knight and Ensminger1998: 105). I share with both perspectives the basic view that norms structure social interactions that promote the benefits of cooperative behaviour. The idea of rationality for complying with norms here assumes a “thick” rather than a “thin” view of rationality (compare Coleman 1990: 511 and Simon 1957: xxiv). According to this perception of rationality,

“...actors are seen to meliorise rather than maximise, the action of individuals is

assumed to be purposive in the sense that self-interest and incentives matter. In thick accounts of rationality, understanding purposive action necessitates interpreting the choices made by actors according to benefits and costs embedded in the institutional environment. The cultural heritage of a society is also important because customs, myths, and ideology matter in understanding the mental models of actors” (Nee 1998: 10).

This thick view of rationality explicitly takes into account that individuals do not have complete information about what is best for them under all circumstances, and thus depend on myths, dogmas, prejudices, ideologies and cultural ideas. Such individuals rely on a variety of short cuts to arrive at decisions. Examples abound of cultural beliefs, group identification and symbolic expression shaping and incentivising certain acts of individuals or groups, even when these are not necessarily the most preferred outcome for an optimum cost. From female genital mutilation in many countries like Somalia or Egypt or ethnic conflict in Jerusalem, they can only be understood by examining the dogmas, cultural beliefs or collective identities of the participants involved (see Nee 1998). For this analysis, I employ rational choice theory in the broadest possible sense, “thick” as opposed to “thin” rationality.