Instit Origins and Change

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The Limits of Design: Explaining InstitutionalOrigins and Change

PAUL PIERSON*

Political scientists have paid much more attention to the effects of institu-tions than to issues of institutional origins and change. One result has beena marked tendency to fall back on implicit or explicit functional accounts, inwhich the effects of institutions explain the presence of those institutions.Institutional effects may indeed provide part of such an explanation. Yet theplausibility of functional accounts depends upon either a set of favorableconditions at the design stage or the presence of environments conducive to

learning or competition. Exploring variability in the relevant social con-texts makes it possible to both establish the restricted range of functionalaccounts and specify some promising lines of inquiry into the subject ofinstitutional origins and change.

Institutions now stand at the heart of much theorizing and explanation inpolitical science. Analysts working from a variety of perspectives haveproduced compelling work on the significance of institutional arrange-ments for political and social outcomes (Hall and Taylor 1996). By con-

trast, we have made far less progress in treating institutions as themselvesimportant objects of explanation. The origins of institutions, as well as thesources of institutional change, remain quite opaque. As David Kreps hasobserved, the sophisticated economic literature on the effects of institu-tions leaves open the question, where did the institutions come from? . . .Having a theory about how institutions arise and evolve could be moreinformative than theories of equilibrium within the context of a given setof institutions (Kreps 1990, 530).

Perhaps the dominant response to this challenge in political science is

the resort (explicitly or implicitly) to functionalist reasoning: the explana-tion of institutional forms is to be found in their functional consequencesfor those who create them. Such an approach, however, has serious short-comings. The goal of this essay is to explore some of the limitations offunctionalist mechanisms of institutional development, and to use thiscritique to point out some fruitful lines for theorizing about institutionalorigins and change. The discussion is limited to formal political institu-tions, which are the products of conscious design and redesign.

*Harvard University

Governance: An International Journal of Policy and Administration, Vol. 13, No. 4, October 2000(pp. 475499). 2000 Blackwell Publishers, 350 Main St., Malden MA 02148, USA, and 108Cowley Road, Oxford, OX4 1JF, UK. ISSN 0952-1895


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The purpose, it should be emphasized, is not to deride functionalistthinking. On the contrary, thinking in functionalist terms about an exist-ing institution, policy, or social organization is one good way to derivecausal hypotheses about institutional origins and change. Functional

accounts, however, are far from being the only plausible ones. The task isto identify alternative mechanisms of institutional origins and change,and to begin to specify the conditions that make one or another accountmore probable.

The argument proceeds in three stages. The first briefly outlines thefunctionalist tendencies prominent in much of the work political scientistshave done on institutions. The second examines the reasons why onemight expect political actors to be only moderately prone to design func-tional institutions. The third considers at greater length two possible

mechanismslearning and evolutionwhich might generate functionalinstitutions over time and discuss the limits of each. The conclusion elabo-rates some implications and offers suggestions for further research.

I. FUNCTIONALIST ARGUMENTS ABOUT INSTITUTIONS

Political scientists have had much more to say about institutional effectsthan about institutional origins and change. Both a cause and consequenceof these lacunae has been a turn to functionalist reasoning. Although

frequently such reasoning is not explicitly stated, functionalist treatmentsof institutions are prevalent in political science. They are common, forinstance, among those who emphasize the rational choices of individualactors that underlie political activity, and the reasonably efficient natureof collective responses to social needs. To take some prominent examplesfrom different subfields of the discipline: international regimes facilitateagreements through issue linkage and the reduction of monitoring costs(Keohane 1984); congressional committees prevent cycling (Shepsle 1986),enable gains from trade among legislators with different priorities

(Weingast and Marshall 1988), or rationalize the flow of scarce informa-tion (Krehbiel 1991); the European Court of Justice offers a neutral moni-toring and enforcement agency for the European Unions member states(Garrett 1995). These works vary in the extent to which they explicitlyaddress issues of institutional origins and change, but in each case one isleft with the impression that institutional functioning in large partexplainsthe presence of particular institutional arrangements.

Much of this theorizing builds on the new institutional economics,especially Oliver Williamsons work on transaction costs (Williamson

1975; Moe 1984). Williamson is quite explicit in arguing that the develop-ment of a particular organizational form can be explained as the result ofthe efforts of rational actors to reduce transaction costs. More generally,functionalist arguments take the following form: outcome X (an institu-tion, policy, or organization, for instance) exists because it serves the func-tion Y. This is not a crazy place for a social scientist interested in

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institutional formation to start. If actors are purposive, it will often be thecase that the effects of an institution have somethingperhaps a lottodo with an explanation for its emergence, persistence, or change (Keohane1984). The problem, however, is that much functionalist thinking in politi-

cal science acts as an end-point rather than a starting point for analysis.Functionalism offers an easy rationale for evading the thorny issues ofinstitutional emergence and change. Rather than directly examining thesetopics, one simply begins with existing institutions. The assumption isthat these institutions exist in the form they dobecausethey are functionalfor social actors. The task of the analyst is to lay bare the particular func-tion (generally, the resolution of some sort of collective choice problem)the institution serves.

Given a reasonable amount of intellectual creativity and a moderately

flexible analytical tool kit, this task of unmasking functions often turns outto be a fairly easy one. Rational choice analysts, for instance, possess justsuch a tool kit, making it possible to reconcile virtuallyanyobserved out-come with a functionalist account (Green and Shapiro 1994). If such anaccount is not readily at hand, one can introduce it by incorporating sidepayments, or nesting one game inside another (e.g., Tsebelis 1990;Lange 1993). Yet it is one thing to demonstrate (or, more often, speculate)that an institution is doing something for social actors. It is quiteanother thing to jump to the conclusion that this accounts for the institu-

tions presence. Such a functionalist logic requires one of two supportinglines of argument: either functional institutions must be products of ratio-nal design, or they emerge over time through mechanisms of institutionalenhancement.

II. THE LIMITS OF RATIONAL DESIGN

A simple vision of institutional design focuses on the intentional andfar-sighted choices of purposive, instrumental actors. By this account,

institutional effects should be seen as the intended consequences of theircreators actions. Although most political scientists would probably rejecta strong form of this argument, it is often a hidden assumption in the anal-ysis of institutions. In any event, exploring the potential pitfalls of such apremise highlights some important challenges for a more sophisticatedapproach to issues of institutional origins and change.

Each component of what might be termed the rational-instrumentalapproach to institutions deserves serious interrogation. Actors may not beinstrumentalin the sense implied by this framework. They may not be

far-sighted. Finally, institutional effects may not beintended. Each of thesedimensions exposes a possible limitation on the effectiveness of institu-tional design, and is therefore an important topic for further theoreticaland empirical investigation.

THE LIMITS OF DESIGN 477


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Limitation 1. Institutional Designers May Not Act Instrumentally

Research on institutions often stresses or assumes the instrumental behav-ior of designers. Institutions are constructed along particular lines becauseactors expect that particular features will produce specific consequences.

Features of institutions are believed to hold significance only to the extentthey help actors achieve their goals.

There is, however, a strong tradition in sociological theory, recentlyconsolidated in sociologys version of the new institutionalism, thatchallenges this premise (Meyer and Rowan 1977; March and Olson 1989;Powell and DiMaggio 1991). In structuring institutional arrangements,actors may be motivated more by conceptions of what is appropriate thanby conceptions of what would be effective. Peter Hall and RosemaryTaylor summarize this line of argument as follows:

[M]any of the institutional forms and procedures used by modern organizationswere not adopted simply because they were most efficient for the tasks at hand,in line with some transcendent rationality. Instead, they . . . should be seen asculturally-specific practices, akin to the myths and ceremonies devised by manysocieties, and assimilated into organizations, not necessarily to enhance theirformal means-end efficiency, but as a result of the kind of processes associatedwith the transmission of cultural practices more generally (1996, 946947).

Sociologists, for instance, have emphasized the pervasive diffusion of par-ticular institutional forms, even in widely divergent contexts. Rather than

revealing the focus of actors on efficiency, they suggest that this institu-tional isomorphism reflects the sensitivity of actors to the need to legiti-mate their activities.

If institutional arrangements are adopted because they are perceived tobe appropriate, not because they serve a means-end instrumentality, thensuch arrangements may actually be dysfunctional for the particular localcontext. The extent to which such logic of appropriateness behaviormotivates institutional design remains controversial among sociologists.At a minimum, however, they have marshaled considerable empirical

material casting doubt on the validity of assuming that institutionaldesigners, as a rule, are motivated exclusively or even predominantly byinstrumental concerns.

Limitation 2. The Problem of Short Time Horizons

A statement attributed to David Stockman, budget director during theReagan administration, is unusual among political decisionmakers onlyfor its candor. Asked by an adviser in 1981 to consider pension reforms to

combat Social Securitys severe long-term financing problems, Stockmandismissed the idea out of hand, exclaiming that he had no interest inwasting a lot of political capital on some other guys problem in [theyear] 2010 (quoted in Greider 1982, 43).

The question of actors time horizons constitutes a central issue for ana-lysts of institutional design. This problem is of particular relevance to

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political scientists. Long-term institutional consequences may be theby-products of actions taken for short-term political reasons. The evolu-tion of the congressional committee system in the USAan importantinstitutional feature of contemporary American governanceis a good

example. As Kenneth Shepsle notes, Henry Clay and his supporters intro-duced the system to further their immediate goals without regard tolong-term consequences: The lasting effects of this institutional innova-tion could hardly have been anticipated, much less desired, by Clay. Theywere by-products (and proved to be the most enduring and importantproducts) of self-interested leadership behavior (Shepsle 1989, 141). Inthis case, the systems long-term functioning was not the goal of the actorswho created it. By the same token, an explanation for the institutionscreation cannot be derived from an analysis of its long-term effects.

Many of the implications of political decisionsespecially complexpolicy interventions or major institutional reformsonly play out in thelong run. Yet political actors, especially politicians, would often seemmost interested in the short-term consequences of their actions; long-termeffects may be heavily discounted. One major reason is the logic of elec-toral politics. John Maynard Keynes once noted that in the long run, weare all dead; for politicians in democratic polities, electoral death can comemuch faster. Because the decisions of voters, which determine politicalsuccess, are taken in the short run, elected officials may employ a high dis-

count rate. They generally will pay attention to long-term consequencesonly if these become politically salient, or when they have little reason tofear short-term electoral retribution.

If politicians often have short time horizons, this has important impli-cations for theories of institutional origins and change. Assume that thecrucial decisionmaker is a politician up for reelection in two years. In thiscontext, effects after the election cycle might not count for much. If politi-cal decisionmakers face many decisions where short-term and long-termbenefits of institutional choices diverge, and if their time horizons tend to

be short, this would seem to diminish the prospect that institutions will bedesigned to achieve functional outcomes over the long term.

Political scientists are beginning to pay considerable attention to theissue of time horizons. The efforts of rational choice theorists, who recog-nize the possible implications of short time horizons for their assumptionsabout institutional origins, have been particularly significant. How, thesetheorists ask, might the shadow of the future be made more relevant forpolitical actors making choices today? There are in fact two distinct butrelated problems here: (1) Actors may have genuinely short time

horizonsthat is, they lack incentives to think about the long term; and(2) they may care about the future but for a variety of reasons believe theycannot reliably influence itin such cases, short-term considerations willagain predominate.

If time horizons can be lengthened, then a claim that the long-term con-sequences of institutions in some sense explain their origins becomes



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The mechanisms operating in politics are generally far weaker. Espe-cially problematic is the fact that each of the time-lengthening devicesdiscussed above relies heavily on the capacity of some actors to ade-quately assess the behavior of others in order to detect opportunistic

actions, and then to bring the guilty parties to heel. Yet such monitoringbehavior is often exceptionally difficult in politics. Indeed, as we shall see,many of the biggest problems with efforts to translate functionalisttheories of institutional design originating in economics to politics stemfrom the complexity and uncertainty that characterizes the political realm.

It is often very hard to establish accountability in political environ-ments. Outcomes themselves are frequently difficult to measure. And, ifwe believe that a system is not performing well, it is still more difficult todetermine which elements in these highly complex systems are responsi-

ble and what kinds of adjustments would lead to better results. There areoften long lags and complex causal chains connecting political actions topolitical outcomes. The complexity of the goals of politics, and the looseand diffuse links between actions and outcomes, render politics inher-ently ambiguous. As North has argued, [P]olitical markets are far moreprone [than economic markets] to inefficiency. The reason is straight-forward. It is extraordinarily difficult to measure what is being exchangedin political markets and in consequence to enforce agreements (1990b,362).

Even if failures in politics are relatively apparent and the culpability ofagents can be established, efforts of principals to sanction their agentsmay be difficult. Many participants in politics (voters, members of interestgroups) engage in activities only sporadically. Their tools of action areoften crude, such as the blunt instrument of the vote, and their actionsmay have consequences only when aggregated with those of other actorsin circumstances where coordination is difficult or impossible.

Thus both monitoring and sanctioning difficulties place serious limi-tations on techniques for lengthening actors time horizons. It is no acci-

dent, for instance, that much of the generally optimistic rational choicediscussion of credible commitments in politics has focused on rela-tively transparent financial issues (e.g., budget deficits, monetarypolicy). In these settings, performance indicators are clear and lines ofaccountability are unambiguous. Hence, behavior is relatively easy tomonitor. While these issues are obviously important, it must be stressedthat for reasons already noted they are fundamentally atypical of thekinds of matters dealt with in politics.

An additional limitation of these techniques for lengthening time hori-

zons is particularly relevant for the specific issue of institutional design.Even if some of the mechanisms discussed by rational choice theorists areoperative in everyday politics, they will often be especially fragile orabsent altogether precisely at moments of institutional formation. Atfounding moments, when crucial new rules are put in place, one oftencannot count on the operation of well-instutionalized contexts to frame

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and structure the actions of political decisionmakers (Elster, Offe andPreuss 1998).

My point is not that actors always have short time horizons, but thatthey often do. Thus the issue of actor time horizons should be treated as a

variable with real implications for questions of institutional origins andchange, and therefore as a subject deserving serious study. Where wewould expect relatively short time horizons to be operative, functionalclaims about institutional design become more suspect.

Limitation 3. Institutional Effects May Be Unanticipated

Even if institutional designers do act instrumentally, and do focus onlong-term effects, unanticipated consequences are likely to be wide-spread. Anyone engaged in empirical research in the social sciences

knows that the most instrumental and canny of actors still cannot hope toanticipate adequately all the consequences of their actions. Institutionsmay not be functional because designers make mistakes.

Unanticipated consequences are likely to be of particular significancein modern polities. Over time industrial societies have become muchmore differentiated, involving increased interactions among increasingnumbers of people. The historical process has been elegantly summarizedby Norbert Elias:

The network of human activities tends to become increasingly complex,far-flung, and closely knit. More and more groups, and with them more andmore individuals, tend to become dependent on each other for their security andthe satisfaction of their needs which, for the greater part, surpass the compre-hension of those involved. It is as if first thousands, then millions, then more andmore millions walked through this world with their hands and feet chainedtogether by invisible ties. No one is in charge. No one stands outside. Some wantto go this way, others that. They fall upon each other and, vanquishing ordefeated, still remain chained to each other (1956, 232).

The profound implications of increasing social complexity need to be

underlined. As the number of decisions made and the number of actorsinvolved grow, relations of interdependenceamong actors, organiza-tions, and institutionsexpand geometrically. This growing complexityhas two distinct consequences. First, it generates problems of overload.More prevalent and complex political activity places growing demandson decisionmakers. In this context, time constraints, scarcities of informa-tion, and the need to delegate decisions may promote unanticipatedeffects. The second consequence of social complexity is growing inter-action effects: the tendency of initiatives to have important consequences

for realms outside those originally intended. As Garrett Hardin puts it,We can never do merely one thing (1963, 7980). Instead, we shouldexpect that social processes involving large numbers of actors in denselyinstitutionalized societies will almost always generate elaborate feedbackloops and significant interaction effects which decisionmakers cannothope to fully anticipate.



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Nor is it just that social contexts are extremely complex; the difficultiesare exacerbated by the fact that the abilities of individuals to draw infer-ences and judgments from their experiences have systematic biases.Barbara Levitt and James March provide an excellent summary:

[I]ndividual human beings are not perfect statisticians. . . . They make systematicerrors in recording the events of history and in making inferences from them.They overestimate the probability of events that actually occur and of eventsthat are available to attention because of their recency or saliency. They areinsensitive to sample size. They tend to overattribute events to the intentionalactions of individuals. They use simple linear and functional rules, associatecausality with spatial and temporal contiguity, and assume that big effects musthave big causes. These attributes of individuals as historians all lead to system-atic biases in interpretation (1988, 323).

Thus, as a number of careful analysts have concluded, social activity

even when undertaken by highly knowledgeable and instrumental actorspossessing long time horizonsshould routinely give rise to significantunintended effects (Hayek 1973; Hirsch 1977; Schelling 1978; Van Parijs1982; Perrow 1984; Jervis 1997). Nor is there any reason to exempt the taskof institutional design from this general tendency. Two brief illustrativeexamples may underscore the point, though most students of politicswould have no trouble generating many additional instances. The firstconcerns the changing institutional position of state governments in theUnited States (Riker 1955). Because approval of the American Constitu-

tion required state ratification, the interests of states received considerableattention in the process of institutional design. The framers intended theSenate to serve as a strong support of state interests. State legislatureswere to appoint senators, who were expected to serve as delegates repre-senting states in the formation of policy. Over time, however, senatorsseeking greater autonomy were able to gradually free themselves fromstate oversight. By the early 1900s, the enactment of the SeventeenthAmendment requiring popular election of senators only ratified the resultof a lengthy erosion of state legislative control.

The development of Canadian federalism provides another example(Watts 1987). The designers of the Canadian federation sought a highlycentralized form of federalismin part as a reaction to the ways in whichdecentralization contributed to the horrors of the Civil War. Yet theCanadian federation is now far less centralized than the American one.Among the reasons: the Canadian federation left the provinces with soleresponsibility for many activities that were then considered trivial. Withthe growing role of government in social policy and economic manage-ment, however, these responsibilities turned out to be of tremendousimportance.

The prevalence of unanticipated consequences raises a difficult chal-lenge for social scientistsafter all, if savvy social actors cannot anticipatemistakes, what do social scientists have to offer? This is a very big topic.The above discussion, however, points to two productive lines of

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investigationboth prominent in recent sociological researchwhichseek to pin down the conditions where unintended consequences arelikely to be most significant. The first focuses on problems of cognitionthe ways in which we are systematically error-prone in our judgments of

the social world, in particular those related to questions of cause andeffect. For instance, since individuals tend to overweight the significanceof recent, highly visible events in their understandings of the social world,we might hypothesize that institutional designers will systematically errin focusing on dramatic failures in the immediate past.

A second line of analysis would focus on distinctive social contexts.Social settings vary in the extent to which they are tightly coupled,involving dense and intensive connections among multiple domains(Perrow 1984; Jervis 1997). Such connections generate complexity and

multiply the number of consequences flowing from any single inter-vention. The prevalence of unintended consequences in institutionaldesign should stem in part from this aspect of social contexts.

In political science, however, the dominant response to the issue hasbeen avoidance. Better altogether if this problem could be made to goaway. There are four plausible ways of doing so; I discuss them inascending order of helpfulness. Often, the reaction of the analyst is totreat unanticipated consequences, perhaps only implicitly, as an errorterm. In practice this means to ignore the matter. But without at least

some further discussion, theorists cannot know how serious the issue isthat they are skirting. It would be nice to at least have some idea how bigthe error term is. This is especially pressing since there seems goodreason to believe that it is rather large indeed.

A second option is to treat unintended effects as noise and to assumethat such effects will be randomly distributed and will therefore tend towash out, leaving the systematic, intended effects behind. For some prob-lems and settings, this is a reasonable way to proceed. It makes a gooddeal of sense, for instance, in studying certain aggregative social processes

involving very large and atomized populations, such as the stock marketor public opinion (Page and Shapiro 1992). However, it is a far less helpfulapproach for the investigation of institutional design and reform. Here,single unintended effects may be quite large. Furthermore, as I willdiscuss below, if institutionalization is path-dependent, then we cannotexpect accidents to cancel out; instead, early accidents may beself-reinforcing (Arthur 1994).

A third and more helpful option is to acknowledge the high potentialfor unanticipated consequences and to argue that this itself constitutes a

crucial organizing principle of institutional design. As Robert Goodinputs it, Accidents happen: but the frequency and direction of accidentscan be significantly shaped by intentional interventions of social planners.. . . Insofar as the social world is accident-prone, we might want to designaround the risk of accidents, seeking robust institutions that can with-stand the various shocks that will inevitably befall them (1996, 29). This



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is not simply a normative argument about how institutions should bedesigned; the claim is that an awareness of the potential for unintendedconsequences itself shapes the activities of institutional designers. Morebroadly, the new institutional economics (and some of its political

offshoots) argue that uncertaintyboth about the behavior of others andabout unforeseen contingenciesplays a major role in shaping theoptimal design of institutions. An efficient institution should be able toabsorb, or adapt to, the predictable (if unspecifiable) bumps in the road.

Yet while this line of argument helpfully incorporates unintended con-sequences into the discussion of institutional design, it does not directlyaddress the issue of how common such unintended outcomes will be. Weare still left wanting to know the extent to which accidents are likely tolead institutions to function in ways at odds with the expectations of

designers. Nor does this general resort to correction-prone or adaptivedesign specify what such a design might be, or how corrections can bemade in reaction to unanticipated consequences.

These concerns are addressed in a final response to the problem ofunintended consequences, which pushes the analysis away from a focuson the capacities of institutional framers. This line of argument, notinconsistent with those already discussed, suggests various selectionmechanisms that will squeeze unanticipated consequences out of insti-tutional settings over time. Claims about mechanisms of institutional

enhancementare sufficiently interesting and important to warrant sepa-rate and extended discussion. I take them up in Section III.That ones attention shifts to such mechanisms, however, reflects the

evident limitations of institutional design. There are strong grounds forchallenging any presumption that institutional effects will reflect theexpectations and desires of institutional designers. Designers may not bethinking primarily in instrumental terms; they may be thinking instru-mentally, but be preoccupied by short-term considerations; or they maysimply make mistakes. Convincing treatments of institutional design

must take all these possibilities into account.

III. EMERGENT FUNCTIONALISM? EVALUATING MECHANISMS

OF INSTITUTIONAL ENHANCEMENT

If the preceding arguments have merit, then institutional effects cannot beassumed to derive in a straightforward way from the intentions offar-sighted, goal-oriented actors. Yet this is not enough to demonstratethe limits of functionalist reasoning about institutions. A second line of

functionalist argument could accept the preceding criticisms of rationalinstitutional designers, while nonetheless asserting that functional institu-tional designs will result over time.

That economists have rarely worried about the possibilities of ineffi-cient institutional outcomes stems less from a nave faith in the capaci-ties of human designers than from a confidence in the potential for

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environment offers far more extensive niches for weak and/or retrogradestate structures to survive. In democratic polities, party systems alsoinvolve a clear competitive dynamic. One could argue with some justifica-tion that parties must adapt their organizations and platforms in the face

of such competition or confront the prospect of decline.In general, however, there can be little doubt that political environ-ments are typically more permissive than economic ones (Krasner1989; Powell and DiMaggio 1991). Another way to put this is that barri-ers to entry are often extremely high. As has already been discussed,poor performance in politics is not always easy to identify or attribute toa particular source. Even where failure can be identified and attributed,major difficulties arise if correction requires collective action in pursuitof outcomes that have the characteristics of public goods (as is usually

the case in politics). In such settings, actors have to overcome very diffi-cult coordination problems in order to generate an institutional compet-itor of the poorly performing institution.

In many cases, however, political institutions are not really subject todirect competition at all.1 Instead, single institutional arrangements, orsets of rules, often have a monopoly over a particular part of the politicalterrain. Consider the two examples of political competition introducedabove. Competition occurs among nation-states, which are territorialunits, each of which contains a wide array of political institutions.

Electoral competition occurs among parties, all of which operate undera single set of electoral rules. Thus, while political parties andnation-states face competition, it is not clear that the notion of competi-tion between electoral institutions is a meaningful one. Thus, wherecompetition operates in politics, it often operates above (interstateconflict) or below" (among contending organizations) the level of insti-tutions. At a minimum, analysts would need to carefully specify theconditions for competitive pressures to generate institutional efficien-cies. In practice, such conditions are generally going to be absent or

weak in nonmarket settings.More detailed discussion is probably warranted for the issue of learn-

ing. Again, however, there are reasons to doubt that learning dynamicswill generally provide a reliable mechanism for institutional enhance-ment. The central reason is the intense complexity and ambiguity of thepolitical world. Although this issue has already been discussed, a briefcontrast with economics may be helpful in clarifying the difficultiesconfronting learning-based mechanisms of institutional enhancement.

Economics is built in large part around the useful and plausible

assumption that actors seek to optimize and are relatively good at it.Firms operate to maximize profits. The metric for good performance is rel-atively simple and transparent. Prices send strong signals which facilitatecomparisons. One can analyze how various features of the economic envi-ronment contribute to or detract from firm performance. Observable,unambiguous, and often quantifiable indicators exist for many of these

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processes, in which responses to public problems proceed in atrial-and-error fashion (Lindblom 1959; Heclo 1974; Hall 1993). There islittle reason, however, to think that this acts as a selection mechanism withanything like the efficiency-enhancing properties of market competition

in economics or Darwinian natural selection in biology. Because politicalreality is so complex and the tasks of evaluating public performance anddetermining which options would be superior are so formidable, suchself-correction is often limited.

My point is not that competition and learning are implausible mecha-nisms of institutional enhancement. On the contrary, it would be hard todeny that political institutions may be modified and enhanced througheach of these processes. Rather, the point is that each of these mechanismsexhibits considerable limitations in the political world. Thus, any ten-

dency toward evolved functionalism should be treated as a variable.Instead of assuming the efficacy of such mechanisms, political scientistsshould engage in sustained investigation of the circumstances underwhich they can be expected to operate reasonably well.

Yet formidable as these limitations of enhancement mechanisms maybe, the problems do not stop there. In addition to this internal critiqueof evolutionary arguments, one needs to consider an external critique.Assume for a moment that competitive pressures are significant, orlearning is considerable. Does it follow that institutional refinement

must result? The answer is no. Even where these mechanisms are clearlyoperative, they face additional hurdles: in Williamsons words, learningor competitive pressures must still be folded back into the organiza-tional design. Here, two fundamental obstacles to institutional correc-tion need to be considered: institutional stickiness and pathdependence. These obstacles operate even in contexts where learningeffects and/or competitive pressures may be significant.

Institutional Stickiness in Politics

Institutional arrangements in politics are typically hard to change. Again,the greater adaptability of the economic organizations studied byWilliamson offers a useful point of comparison. An individual with a newidea for a product need only secure the finance to put it on the market. Ifenough consumers (choosing independently) find it sufficiently appeal-ing, the product will be a success. Change can be engineered throughcompetition against existing products. Similarly, those with propertyrights over a firm are generally in a relatively strong position to remaketheir organizations as they choose. Lines of authority are clear, and therelevant decisionmakers are likely to share the same broad goal of maxi-mizing profits.

By contrast, formal political institutions are usually change-resistant.As Robert Goodin puts it, stability and predictability are achievedthrough a system of nested rules, with rules at each successive level in

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to the new rules of the game by making extensive commitments basedon the expectation that these rules will continue, previous actions maylock in options that actors would not now choose to initiate. Putanother way, social adaptation to institutions drastically increases the

cost of exit from existing arrangements. Rather than reflecting the bene-fits of institutionalized exchange, institutional continuity may reflectthe rising costs over time of adopting previously available alternatives(Pierson 2000).

Recent work on path dependence has emphasized how initial institu-tional decisionseven suboptimal onescan become self-reinforcingover time (Krasner 1989; North 1990a). These initial choices encourage theemergence of elaborate social and economic networks, greatly increasingthe cost of adopting once-possible alternatives and therefore inhibiting

exit. Major institutional arrangements have major social consequences.Individuals make important commitments in response to these institu-tions. These commitments, in turn, may vastly increase the disruptioncaused by institutional reforms, effectively locking in previousdecisions.

Research on technological change has revealed some of the circum-stances conducive to path dependence (David 1985; Arthur 1994). Thecrucial factor is the presence of increasing returns or positive feedback,which encourages actors to focus on a single alternative and to continue

movement down a particular path once initial steps are taken.Large set-upor fixed costsare likely to create increasing returns to further investmentin a given technology, providing individuals with a strong incentiveto identify and stick with a single option. Substantial learning effectsconnected to the operation of complex systems provide an additionalsource of increasing returns.Coordination effects(or network externalities)occur when the individual receives increased benefits from a particularactivity if others also adopt the same option. Finally,adaptive expectationsoccur when individuals feel a need to pick the right horse because

options that fail to win broad acceptance will have drawbacks later on.Under these conditions, individual expectations about usage patternsmay become self-fulfilling.

As North has argued, all of these arguments can be extended fromstudies of technological change to other social processes, particularlyto the development of institutions. In contexts of complex social inter-dependence, new institutions often entail high fixed or start-up costs,may involve considerable learning effects, and generate coordinationeffects and adaptive expectations. Established institutions create pow-

erful inducements which reinforce their own stability and furtherdevelopment. In short, North concludes, the interdependent web ofan institutional matrix produces massive increasing returns, makingpath dependence a common feature of institutional evolution (1990a,95).

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Lock-in arguments have received little attention within political sci-ence, in part because these processes have a tendency to depoliticizeissues. By accelerating the momentum behind one path, they renderpreviously viable alternatives implausible. The result is often not the kind

of open conflict over alternatives that political scientists would quicklyidentify, but the absence of conflict. Lock-in leads to what Peter Bachrachand Morton Baratz (1962) called non-decisions. This aspect of politicscan probably be identified only through careful, theoretically groundedhistorical investigation of how social adaptations to institutional and pol-icy constraints alter the context for future decisionmaking (Hacker 1998).

Over time, as social actors make commitments based on existing insti-tutions, the cost of exit rises. Williamsons confident assertion thatlearning allows firms to adjust to unanticipated consequences applies far

less well to an analysis of politics, and especially to the study of formalpolitical institutions. Learning from past events may lead actors to act dif-ferently in launching new initiatives. Recapturing ground in previouslyinstitutionalized fields of activity, however, will often be quite difficult.Actors do not inherit a blank slate that they can remake at will when theirpreferences shift or unintended consequences become visible. Instead,actors find that the dead weight of previous institutional choices seriouslylimits their room to maneuver. Previous institutional choices may besticky, and they may be path dependent. Thus, even if learning and com-

petitive mechanisms are present, it is far from self-evident that these pres-sures will translate into institutional enhancement.

IV. SOME NEXT STEPS

This essay has advanced two core arguments: (1) Functionalistpremisesabout institutional origins and change should be replaced by functionalisthypotheses;and (2) functionalist hypotheses should be supplemented andcontrasted with hypotheses stressing the possible nonfunctionalist roots

of institutions. We should expect the prevalence of functional outcomes inthe construction and reconstruction of political institutions to be highlyvariable. More subtle theories of institutional origins and change must bebuilt around careful argument about the preconditions for functional out-comes to occur. This requires specification of where such claims mightbreak down and the circumstances that make the presence of such unfa-vorable conditions more or less likely.

Rather than assuming that institutions originate and change to meetfunctional requirements, we need to make this a target for investigation.

This is wide open terrain for systematic research. It may be true, as Rich-ard Nixon said of Keynesianism, that we are all institutionalists now. Yetpolitical scientists have produced very little sustained empirical work,organized around clear competing hypotheses, comparing institutionalorigins and change across different settings. Without this research, we arein no position to evaluate the impact of particular contextual features on



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institutional outcomes, or even to establish how prevalent such featuresare in the political world. The contrast with sociology, where there is athriving tradition of theoretically informed empirical research on relatedtopics, is striking (Clemens 1999).

It is worth stressing two common threads in many of the argumentsadvanced in this essay. The first is the major contribution of sociologicalresearch to an understanding of functionalisms limitations. Whether theissue is the noninstrumental behavior of actors, the limits of learning orcompetitive processes of institutional enhancement, or the cognitive andsocial sources of unintended consequences, sociologists have had a lot ofinteresting things to say. Political scientists should continue to borrowinsights from other disciplines, with appropriate modifications. In doingso, however, greater attention could well be paid to recent theoretical and

empirical work in sociology.The second common theme linking the various issues discussed is thatall of them require that we look closely at the intertemporal aspects ofpolitics, rather than take a snapshot view of political processes and out-comes. To see where functional accounts might come up short one needsto look not just at the moment of institutional origins, or at a current insti-tution (deducing origins from current functioning). Instead, one mustconsider dynamic processes that can highlight the implications of shorttime horizons, the scope of unintended consequences, the emergence of

path dependence, and the efficacy or limitations of learning and competi-tive mechanisms. This requiresgenuinelyhistorical research. By genuinelyhistorical research I mean work that carefully investigates processesunfolding over time. This work needs to be distinguished from efforts tomine history for illustrations of essentially static deductive arguments.The application of tribal labels is too widespread in American politicalscience, but one could see the line of argumentation I am recommendingas a variant of historical institutionalism (Hall and Taylor 1996). It restson the basic premise that the explanation of many aspects of politics

requires diachronic as well as synchronic analysis.Highlighting the benefits of more sociological and genuinely historical

work implies that the new institutional economics is unlikely to providesufficient basis for theories of institutional origins and change in politics.Indeed, I have stressed throughout that efforts to translate theoreticalarguments from the economic realm to the political one are more perilousthan is often recognized. Such translations need to be done with care, andwith an appreciation for the limits of the analogy. This is not to dismiss thenew institutional economics and its rational choice offshoots in political

science. These lines of inquiry have generated important insights, particu-larly through a partial but significant effort to show how various obstaclesto functional dynamics might be overcome.2

To emphasize both insights and limitations is not to advocate that wesplit the difference among alternative approaches. It is to recognize thatdistinct bodies of theory may provide greater leverage for analyzing

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particular contexts and dynamics. As Jepperson (1996) has put it, seem-ingly antagonistic theoretical imageries may sometimes (but only some-times) be more complementary and less competitive than we realize. Theymay cover different aspects of processes, with different theories contribut-

ing modules that can potentially be linked to produce more completeaccounts (Scharpf 1997). They may be discussing discrete phenomena.They may possess poorly articulated boundary conditions (xwill holdunder conditionsa,b, andc, butywill hold under conditionsd,e, andf).

Such would seem to be the case here. Figure 1 summarizes my discus-sion, presenting conditions that make functionalist outcomes more or lesslikely. Two broad contexts are more favorable to functionalist accounts.The first is where conditions are such that we can expect initial designersto behave instrumentally, to focus on long-term institutional effects, and

to be relatively accurate in their projections concerning those effects. Thesecond context is where learning and/or competitive mechanisms arestrongandobstacles to reform stemming from path dependence and insti-tutional veto-points are modest.


FIGURE 1Social Context and Functionalist Explanations


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I would not suggest that circumstances where these various combina-tions of favorable conditions hold will be rare in politics; indeed, they areprobably fairly common. On the other hand, it seems highly unlikely thatthey would be so common that theorists could safely operate from func-

tionalist premises. Functional explanations of institutional origins andchange are not wrong-headed, but they are radically incomplete. As a con-sequence, they suggest a world of political institutions that is far moreprone to efficiency and continuous refinement, far less encumbered by thepreoccupations and mistakes of the past, than the world we actuallyinhabit.

Acknowledgments

I am grateful for the support of the John Simon Guggenheim Foundation

and the European University Institutes Robert Schuman Center. AlanJacobs offered very helpful comments on an earlier draft. AndrewRudalevige, Effi Tomaras, and Jeremy Weinstein provided valuableresearch assistance.

Notes

1. Thanks to Alan Jacobs for suggesting this line of argumentation.2. Again, the target of my criticisms in this essay is loose functionalist explana-

tions of institutional origins and change. While I stress that many rationalchoice analyses fall into this pattern, Gary Miller quite rightly notes in histhoughtful commentary in this issue that they need not do so. Like Miller, Ido not believe that analysts face an either/or choice between rational choiceand some alternative(s). Indeed, some of my own analysis (e.g., the discus-sion of path dependence) draws heavily on rational choice theory. Yet itremains the case that rational choice theorists have focused primarily on theeffects of extant institutions. By contrast, many of the dimensions of socialprocesses relevant to a discussion of institutional origins and change havereceived limited attention. Randall Calvert, for instance, acknowledges thatthe institutions-as-equilibria approach . . . says nothing directly about theemergence of institutions (1995, 80). As Jack Knight (1995, 111) has argued,theories of institutional dynamics, including those grounded in rationalchoice, turn in part on different claims about the actual empirical condi-tions under which social institutions emerge and change. How much un-certainty do actors face in different contexts? How long are actors timehorizons? How difficult is it to detect and correct institutional failures? Howcompetitive is a particular institutional environment? Analysts studyingthese crucial issues can usefully draw on bodies of theory outside of rationalchoice traditions.

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