Methodological Individualism

The new institutional economics 257tionalists in economics belongs in both categories; institutional as well as psychologisticindividualism. But while the ambition is usually to stay within the latter,strong version of methodological individualism, most of their work ends up inthe former, weak version of this principle. At least, this is what I will try to showin this chapter.It is often maintained that institutionalism is the traditional approach in politicalscience (see Udehn, 1996: 2f). The roots of this institutionalism can betraced back to Aristotle’s famous comparative analysis of constitutions in ThePolitics. When we turn to the new institutionalism in modern political science,however, it is important to distinguish, at least, two branches: (1) One rationalchoice branch, which has much in common with the new institutionalism ineconomics. This branch will be discussed in the next chapter. (2) Another, sociohistoricalbranch, has more in common with the old institutionalism ineconomics and political science and also with the new institutionalism in sociology.In contrast to the new institutionalism in economics, it sees institutions asirreducible and fairly stable entities, capable of moulding the behaviour of individuals(March and Olsen, 1989: 16ff). As such it is different from individualisticapproaches to politics.Like political science, traditional mainstream sociology used to be institutionalistic.Emile Durkheim, for instance, suggested that ‘sociology … can be definedas the science of institutions, their genesis and functioning’ ([1895] 1982: 45) andTalcott Parsons says much the same thing in The Social System (1951: 36–51).What is usually called ‘the new institutionalism’ in sociology is, in my opinion,not as different from the old institutionalism, as some of its adherents wish tomaintain (Powell and DiMaggio, 1991: 11–33). There is a certain shift of focusfrom structure to culture, but it is not dramatic. Closely connected to this shift isanother one, from a normativist to a cognitivist conception of social institutions.A third difference is that, whereas the old institutionalism was a generalapproach to social phenomena, the new institutionalism is largely confined to thetheory of organisations. Among the things that unite the old and new versions ofinstitutionalism in sociology are a pronounced anti-rationalism and antiindividualism.4 For this reason, also the new institutionalism in sociology is verydifferent from that in economics (Powell and DiMaggio, 1991: 2–11; Sjöstrand;1993).To come back to the new institutionalism in economics. As we have alreadyseen, it is supposed to be a formalist and individualist rational choice approach.Considering its roots in microeconomics, this is not at all surprising. It should benoted, though that the roots of the new institutionalism in economics are not tobe found in the theory of general equilibrium, but in less orthodox approaches.The most orthodox and most influential source of the new institutionalism ineconomics is the Chicago School, which brought property rights and transactioncosts into economic analysis. The Chicago School is largely Marshallian andfocuses on maximising behaviour and partial, rather than general, equilibrium.But there is also the important exception of Armen Alchian, who suggested thatthe assumption of maximising behaviour might be replaced by that of selection.