Economic Sociology of Conventions

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Annu. Rev. Sociol. 2003. 29:443–64doi: 10.1146/annurev.soc.29.010202.100051

Copyright c© 2003 by Annual Reviews. All rights reservedFirst published online as a Review in Advance on June 4, 2003

THE ECONOMIC SOCIOLOGY OF CONVENTIONS:Habit, Custom, Practice, and Routinein Market Order

Nicole Woolsey Biggart1 and Thomas D. Beamish21Graduate School of Management and Department of Sociology, University of California,Davis, California 95616; email: [email protected] of Sociology, University of California, Davis, California 95616;email: [email protected]

Key Words economic routines, network theory, mental models, cognition,decision making, institutions, intersubjectivity, coordination

■ Abstract Economic sociology and economics have tried to explain the organi-zation and stability of market capitalism mostly by arguing for the effects of socialstructure on the patterning of relations, or for the role of the price system in balancingthe demands of individual economic actors. In North America, the primary alterna-tive to structural and individualist theories of market order has been network theory, ameso-level attempt to bridge over- and undersocialized views of actors. In Europe, theprimary attempt to develop more realistic economics has centered on the role of con-ventions in shaping economic activity. We describe theories of market order, show howconvention theory and related approaches represent a novel alternative, and suggesthow convention theory can supplement network theory and institutional approaches tounderstanding market order.

INTRODUCTION

Economic organization and market order are central concerns of both classicaland contemporary economics and economic sociology. Even scholars of differ-ent perspectives typically agree that stable economic organization is critical tocapitalism. Capitalism, a system where private ownership and investment are thebases of economic action, functions best under conditions of steadiness, regularity,and predictability, conditions in which actors understand and trust the setting forinvestment, purchase, savings, and production. Actor uncertainty about the organi-zation, rules, and transparency of the market, conversely, undermines confidencethat transactions can take place in profitable ways.

The dispersed and private nature of capitalism, as opposed to, for example,state socialist or patrimonial economies where coordination is centralized, prop-erly leads scholars to be concerned with those factors that organize and coordinate

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the economy. Social science has sought the source of economic organizationand coordination in firms, industries, networks, and populations (Baker 1981,1984, 1990; Fligstein 1991; Hirsch 1972, 1975, 1986; Powell 1989; Powell &DiMaggio 1991; Swaminathan & Carroll 1995; Uzzi 1989, 1996, 1997; White1981; Williamson 1985, 1994), classes and interest groups (Block 1992, 1994,1996; Block & Manza 1997; Palmer 1983; Palmer et al. 1995a; Palmeret al. 1995b; Palmer et al. 1993a; Palmer & Biggart 2002; Palmer et al. 1987,1993b; Wright 1978, 1985, 1987), or state and societal sectors (Evans 1989, 1992;Stark 1990, 1992; Streeck & Schmitter 1985). There is far less research on themicrofoundations of capitalist organization and action from a sociological per-spective (but see Abolafia 1996; Abolafia & Kilduff 1988; Hirsch 1972; Smith1989; Zelizer 1979, 1992, 1994 [1984]). Economists have turned to laboratoryexperiments conducted by psychologists (see Tversky & Kahenman 1974, 1986;Tversky et al. 1990) and game theory (see Kreps 1990,Rationality and Society1992) to develop microeconomic theory. Micro studies are concerned with factorsthat influence individual actors or small groups in economic decision making, forexample interpretive, cultural, and psychological factors that produce regularitiesof action.

In this review, we examine scholarship that considers the role conventions playin maintaining order in the economy. Conventions—and related concepts suchas habits, customs, routines, and standard practices—are understandings, oftentacit but also conscious, that organize and coordinate action in predictable ways.Conventions are agreed-upon, if flexible, guides for economic interpretation andinteraction. Although used by individuals as they buy, bargain, and sell, conven-tions do not reside in, and are not reducible to, individuals. Theorists of conventionsexplain economic order as the product of socially knowledgeable actors workingwithin collective understandings of what is possible, probable, and likely to resultin fiscal and social gain and loss. Conventions are shared templates for interpretingsituations and planning courses of action in mutually comprehensible ways thatinvolve social accountability, that is, they provide a basis for judging the appro-priateness of acts by self and others. Conventions thus are a means of economiccoordination between actors that are inherently collective, social, and even moralin nature. The economic sociology of convention is a promising approach to asociological understanding of both economic organization and dynamics.

In this chapter, we do four things:

■ First, we review alternative approaches to understanding organization, order,and coordination in the economy.

■ Second, we discuss the concept of economic convention and related terms asused by classical economic and social theory.

■ Third, we examine research on economic conventions, standards, routines,and related concepts.

■ Finally, we suggest how the economic sociology of conventions creates anempirical and theoretical basis for claims made by institutional theories ofthe economy.


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MICRO AND MACRO THEORIES OF ECONOMIC ORDER

Traditionally, theories of economic order were either structuralist or individualist,that is, either top-down or bottom-up explanations of economic organization andstability. Structural theories, although varying widely, locate regularities in macro-logical forces and institutions that encourage, even demand, particular forms ofaction, whereas individualistic theories locate order in the orientations of actors,either in isolation or as they negotiate arrangements with others, and they aretypically assumed to be autonomous rational actors.

MACRO INSTITUTIONAL THEORIESOF ECONOMIC ORDER

Political economy theories, including world systems (Wallerstein 1974, 1980,1984, 1989; Wright 1978, 1985, 1987), dependency (Cardoso & Faletto 1979,Frank 1969), and modernization (Rostow 1969, Rostow & Kennedy 1990) situateeconomic order in the stratified relations between actors in a capitalist system.Actors, whether individuals or states, conduct themselves consistent with theirlocation in an economic structure as, for example, a core state able to impose theconditions of trade, or a peripheral state dependent on relations with a dominantnation such as a former colonizer. Class theorists, including Wright (1978, 1985,1987), Palmer (1983; Palmer et al. 1987; Palmer et al. 1993a,b; Palmer et al.1995a,b; Palmer & Biggart 2002), and Buroway (1979, 1985; Buroway & Krotov1992) use a similar logic, locating intra-economy coordination and order in theunequal power of some classes of actors to impose arrangements over all. Actorsbehave predictably, in ways that express their interests given their place in theeconomic order.

The sociological institutional approach is also structural but includes a concep-tualization of the social construction of ideas that orient actors and create the basesfor order. For Weber (1968 [1922]), economic organization is built on structures ofmaterial interests and ideas that legitimate arrangements. Institutional sociologistshave stressed macro-institutional sources and arrangements of market capitalism—particularly at the level of states and occasionally industries—investigating thehistorical sources of economic markets (Collins 1980, Hamilton 1994, Wallerstein1984), the role of the state in creating and sustaining markets (Campbell &Lindberg 1990, Dobbin 1994), and markets as the outcome of politico-culturalprocesses (Fligstein 1996, Swaminathan & Carroll 1995). Institutional sociologistsconceptualize economic market environments as “fields” within which economicactors (typically firms) are constrained by regulative and normative pressures(Baker 1984; Fligstein 2001; Scott 1995; Galaskiewicz 1985; Powell & DiMaggio1991, pp. 64–65). They have collectively sought to demonstrate the social bases ofmarkets in part as a refutation of asocial market conceptualizations that dominateeconomic theory and policy (Abolafia & Biggart 1991).

More recent efforts by institutional scholars attempt to connect macrostruc-tural models and meso- and micro-level market processes. Researchers have



documented the importance of conventions in the composition and legitimacy ofeconomic institutions including the importance of family structure (Hamilton &Biggart 1988); culture, norms, and professional organizations (Guillèn 1994); andthe underlying arrangement of social groups in society (Biggart & Guillèn 1999).Fligstein (2001) advances a macro-institutional perspective on market formation,structure, and strategy but with an explicitly cultural-political conceptualizationof firm behavior. The orderly configuration of markets reflects the interpretiveframeworks market actors tactically employ to survive and prosper in competitiveeconomic environments. Fligstein (2001) labels these interpretations conceptionsof control. An ascending conception of control increasingly is perceived as the stan-dard for conduct. In this, Fligstein supplies a theoretical account that relates thederivation and rise of institutional practices, i.e., convention, in industrial markets.

Economic historians, too, have viewed the development of institutional arrange-ments—such as property rights regimes, the laws of the state, and the adminis-trative routines of government—as creating constraints that channel firm behav-ior in predictable ways (North 1981). Greif (1989) demonstrated how the familystructure of the Mughabi traders created durable patterns for private economicarrangements.

Although there are parallels between institutional economics and institutionalsociology, sociologists maintain that it is not simply the structure of the economy,but the substance of the structure of relations that shapes economic activity andpractice in predictable ways. Institutional sociologists find market order emergingnot only from perturbations in preconditions, but also as the result of social andpolitical processes—especially ideational ones. However, although sociologicalstudies have provided an aggregate picture of the social basis of markets, theyhave left the actual conventions they posit largely unexplored.

Micro Theories of Economic Order

Micrological theories of the economy typically locate order in the aggregate acts ofmany individuals. Economic theory locates order in the price system, an impersonalcompetitive process wherein the highest bidder succeeds and the market clears.Disequilibrium, or the disorder caused by too few or too many goods, causesrational market actors to adjust the amount of goods for sale, their prices, orquality as a proxy for price, returning a disorderly market to orderly equilibrium.Under capitalism it is the price system—and its metaphorical expression as aninvisible hand—that coordinates the autonomous acts of people pursuing interestswithout regard to each other (Eatwell et al. 1987).

Microeconomic theories have elaborated this model in different ways. For ex-ample, transaction cost economics argues that actors seek the least costly way ofpursuing their interests, for example in the market or through firm organization,depending on the nature of the economic setting (Teece 1986; Williamson 1985,1994). Individual actors pursuing efficient organization is what effectively createsorder in the economy (see Biggart & Castanias 2001).



According to rational choice theorists, all social action is rationally motivated,instrumental, and calculated. Further, the selection of choice alternatives is basedon problem attributes, environmental constraints, and decision-maker preferencesembedded in a criterion of self-gain (see Blau 1964; Coleman 1973, 1990; Cook& Levi 1992; Granovetter 1985; Hechter & Kanazawa 1997; Homans 1961). Thistheoretical viewpoint underlies the assumptions of many sociologists who oper-ationalize these suppositions—sometimes explicitly, but often implicitly—to ex-plain the behavior of both individuals and corporate forms (but see Coleman &Fararo 1992, Gambetta 1993, Haveman 1995, Haveman & Cohen 1994, Schlegel& Weisburd 1992).

Rational choice theory as employed by sociologists and other social scientists,although increasingly colonized by economists (Scott 2000), does differ frommicroeconomic conceptions in that rational choice accounts tend to presume thatactors are instrumentally rational within the structure of an economic system, not inthe abstractly rational way presumed by neoclassical economics. Structure creates acontext within which economically rational action occurs. These theorists also tendto assume that economic structures are path dependent, that is, influenced by smallchanges in technology and market factors (see Nelson & Winter 1982). Yet, similarto microeconomic arguments, rational choice theory assumes economic actors tobe egoistic and hyperrational. Although rational choice theorists have attemptedto mitigate assumptions of hyperrationality and egoistic intention, among others,by adding variables to their models, the theory is ultimately built on the edifice ofthese suppositions (see Peterson 1994).

Theories that assume actors are egoistically driven and comprehensively ratio-nal are challenged by recent developments in cognitive science, developments justbeginning to find their way into economic reasoning (Kahenman & Tversky 2000).In contrast to utility-maximization (see Becker 1996), research demonstrates thatrationality is both limited by the cognitive capacities of human beings as well asbounded by the context within which market actors are embedded.

Psychologists reject both the reductionist models of economics and behaviorismas explanations of human action in favor of more complex understandings of whypeople act and how they make choices. Cognition is the process by which actorscome to know and judge phenomena. Rather than apprehending the world indis-criminately, cognitive psychologists have demonstrated that the mind selectivelyfilters and categorizes information through the use of mental models of varioustypes (Fischhoff 1990, Kahenman & Tversky 2000, Slovic et al. 1979, Tversky& Kahenman 1974). Mental models shape what people perceive, how they pro-cess perceptions, and how they store and retrieve information. Actors use mentalmodels to organize what they experience into expected relationships and to frametheir understandings, and even responses, “appropriately” (see DiMaggio 1997for a sociological review of cognitive science, and Zerubavel 1997). In complexsituations actors seek familiar patterns, expected relations, and use schemata, orworking hypotheses from which to construct a strategy of action. These schemataare constructed from experience and a situational understanding of what others



are likely to do, what has worked in the past, and the general direction change islikely to take. Schemata are not static but rather ongoing and subject to changewith social interaction, feedback, and synthesis.

In light of these developments, economists and rational choice theorists (seePeterson 1994) have begun to use the insights of cognitive science to developricher models of economic rationality and choice. For example, Arthur arguesthat in ill-defined or subjectively complex situations, deductive logic of the sortassumed by traditional economics has limited use (Arthur 1994, p. 406). Ratherthan abstractly weighing alternatives, actors make judgments and choices basedon situational expectations and use inductive logic. Hypotheses are revised inresponse to feedback from others and from new observations. Arthur assumes thatagents differ and may simultaneously hold multiple models. Schemata enhanceefficiency because they give actors realistic bases from which to make choices,bases constantly tested and revised in response to feedback.

Cognitive science’s concern with mental models, schemata, and pattern-basedperception has developed out of research on individual psychology, but socio-logical research affirms and supplements these ideas in ways that hold promisefor understanding economic action. Using fieldwork and observational methods,sociologists concerned with subjectivity have variously argued that social worldsare organized social constructions—a mentalité, habitus, or logic—and that actorsimpose frames of meaning on experience. These sense-making practices makemeaningful interaction possible.

Research in this tradition gives credence to the idea that economic action isfacilitated by shared understandings and mutually accepted definitions of situa-tions. At the level of interpersonal interaction, “scripts” make exchange routinizedand unproblematic (Garfinkel 1967), and at the level of industries and economies,“institutionalized” understandings and arrangements facilitate economic action byproviding agreed-upon, often tacit, ways of conducting business (Fligstein 1990).Although not necessarily the product of conscious calculus and deductive logic,everyday economic action can be understood as inductively rational and strainingtoward efficiency, the result of practical reason (Bourdieu 1990) and the applicationof situational logics.

The content and structure of models vary culturally across societies and overtime in a single society (Douglas 1966, Schweder 1991, Zerubavel 1997). Ac-tors are socially situated, and mental models or institutionalized logics are onlyunderstandable in terms of the social structure in which action takes place. Thisobservation supports recent insights of institutional economics (North 1990) andsociological institutional theory (Meyer & Whittier 1994). Over time, establishedsocial arrangements can provide incentives to act in predictable ways thus up-holding “credible commitments” (see Becker 1960; Biggart & Hamilton 1984 forsociological perspectives on commitment and action; and Williamson 1985, p. 48for an economic version of this observation). Actors who ignore established ar-rangements and conventions risk being unintelligible to others or judged immoralor irrational.



Akerlof (1980) has used this insight to model customary economic activity. Hismodel explains why “social customs that are costly for the individual to followpersist nevertheless”(Akerlof 1980, p. 749). He departs from the Arrow-Debreueconomy that assumes unbridled greed, in assuming that people care about theirreputations and about maximizing their consumption. Actors in his model follow acode of honor upheld by reputable members of a community. Indeed, it is possiblethat only by acting reputably an actor can maximize economic utility. Further,“many different customs, once established, could be followed in equilibrium. In-deed, such multiplicity is the essence of social custom: it is inherent in the adage,‘When in Rome, do as the Romans do’” (Akerlof 1980, p. 751). This is a logicalmodel and does not theorize or explain any particular economic setting.

Sociologists and cognitive psychologists have critiqued microeconomic modelsof economic behavior as unrealistic accounts of economic decision making andcontexts. To cognitive psychologists, microeconomic models overestimate humancognitive capacities and ignore the mental shortcuts people use to make complexdecisions. To sociologists, markets are more than spheres of economic exchangethat are characterized by scarcity and competition. Finally, at the micrologicallevel, both sociologists and anthropologists have critiqued the neoclassical per-spective through historical analysis of markets (Carruthers 1996, Polyani 1957[1944], Roy 1997) by conducting ethnographies that outline and describe actualeconomic behavior (Abolafia 1996, Smith 1989, Wilk 1996, Zelizer 1994 [1984])and by documenting the multiplicity of markets and market conceptions (Biggart& Guill en 1999, Geertz 1978, Westney 1987). In short, sociologists have beencritical of market models that do not account for the social rules and regulations,i.e., conventions that govern social interaction in economic settings.

THE SEARCH FOR MIDDLE-RANGE THEORY

Reductionism is typically the bridge that, whether implicitly or explicitly, unitesindividuals and aggregates via structural determination or its antithesis, method-ological individualism. Yet there are attempts to create middle-range economictheories in sociology that do not postulate self-equilibrating market systems, com-prehensively rational individuals, or social dopes who mechanically follow socialstructural cues. In North America, network analysis has been the primary vehiclefor developing meso-level understandings of economic contexts.

Both macro and micro orientations are combined in the embeddedness ap-proach, an insight traced to Polanyi’s study of the rise of market capitalism inthe West (1957 [1944]). Polanyi argued against those who saw the market be-coming an autonomous sphere under modern capitalism, with people becomingmore calculating and individuated, a position formalized in economic theory asautonomous rational actors. Granovetter (1985) used the embeddedness conceptto extend White’s (1981) claim that stable markets were only possible if exchangepartners took one another into account. Like Polanyi, Granovetter argued for therole of concrete personal relations and structures in creating stable economies.



Network ties establish and ensure durable market relations as opposed to the typ-ically assumed spot market—a market that involves one-time buyers and sellerswhose only tie is a single exchange—assumed by economic models.

Granovetter (1985, 1992) and others (e.g., Baker 1990; Burt 1992; Gulati &Gargiulo 1999; Romo & Schwartz 1995; Uzzi 1989, 1996, 1997) have increased ourunderstanding of market action as influenced by their embeddedness in networkedroles and relations. Yet the embeddedness approach—as currently configured—continues to be a partial explanation. In pursuing a role- and relation-based un-derstanding of market arrangements, embeddedness scholarship treats markets asstructurally determined and implicitly outside the realm of meaning, interpretation,and individual agency (Krippner 2001, Zuckerman 1999). Markets conceptuallyremain reified empirical objects, external to the social actors who constitute them,rather than being conceived of as reified abstractions that represent intersubjectivestates of mind and meaning, reproduced through ongoing social participation andsocial investment. In order for participants to come together and meaningfully in-teract, they must share at least a sense of purpose, if not a syntax of intersubjectiveessentials—in a word, market ties must be meaningful (Emirbayer & Goodwin1994).

Organizational analysts (Barley & Tolbert 1997, March & Simon 1993, Nelson& Winter 1982, Silverman 1970, Simon 1945, Zucker 1987) and before them“interpretivists” (Collins 1980; Garfinkel 1967; Goffman 1963, 1967; and socialpsychologists such as Weick 1979, 1995) have for some time recognized that in-tersubjectivity is critical in maintaining social order and stability in both formaland informal settings. Intersubjectivity also contributes to market order because itproduces agency within constraints: Actors faced with complex settings, numerousothers, and financial uncertainty construct strategies of gain and make decisionsby pulling from a repertoire of alternatives that reflect social structural constraintsbut are also modified via new combinations and subtle innovation. In so doing,economic actors simultaneously reproduce and transform marketplace relations ina relatively routine, predictable, and socially accountable manner (Molotch 1990).

There are a handful of empirical studies by sociologists that suggest how eco-nomic action is conducted in market and market-like settings with special attentionpaid to routine conduct (e.g., Bourdieu 1984, 2002a,b; Saxenian 1994; Zelizer 1994[1984]). For example, Abolafia’s (1996) comparative analysis of three Wall Streetexchanges argues that the structure of the local exchange supports a particular typeof culture with attendant conventional practices, which in turn leads to a distinctorientation toward economic action. Smith (1989) similarly suggests how bothmanifest and latent rules over conduct differentiate two distinct types of auctionmarkets within which price-setting behavior occurs. Biggart (1989) discusses howmeaning structures support stable relations among formally independent, direct-selling salespeople.

These examples account for economic patterning through action, not by re-constructing the network in which action takes place or by assuming the impactof macro forces. Similarly, convention theory—a range of approaches that spring



from common assumptions—represents a subjectivist way of understanding eco-nomic order. Convention theory, like network theory, is a middle-range perspectivebut begins from micro foundations, not structural ones. Just as network theory is anattempt at realistic economic theorizing in North America, convention theory rep-resents European, particularly French, attempts to develop a realistic economics.Perhaps ironically, convention theory traces its roots to American pragmatism, aswell as to Durkheimian sociology.

CONVENTIONS, HABITS, CUSTOMS, ANDROUTINES IN CLASSICAL THEORY

The role of social customs and conventions in the economy has had a small butenduring place in economic scholarship. Mill inPrinciples of Political Economy(1965 [1871], pp. 242–48) argued early on for the importance of custom, not onlycompetition, in directing economic action and outcomes. However, he spent littletime exploring the role of custom in setting prices because he determined that cus-tom, as in customary wages and prices, varies by society and group, and thereforeis not amenable to universalistic propositions or to methods that assume economicuniversality. Mill acknowledged the importance of custom in the economy but ne-glected it in the pursuit of a general model based on competition and also becausehe and other early theorists believed that customary economic relations were ves-tiges of traditional economy. Custom, in their view, had to be purged for modernrational capitalism.

Weber (1968 [1922], p. 29) agreed with Mill in assuming that traditional ori-entations interfered with rational capitalist action, but he distinguished betweentraditional behaviors by the character and degree of social approbation they incited.To Weber, usage refers to all types of action that occur repeatedly, for whateverreason. A usage becomes a custom when it is a practice of long standing. Cus-toms are practices that do not carry social sanction; they are typically a matter ofpersonal preference or habit.

Weber also extensively used habit to explicate the effects that custom and con-vention had in enforcing conformity and impeding social innovation. Contained inhis use of the termEingesteltheit, or habitual disposition, Weber meant by this the“unreflective, set disposition to engage in actions that have been long practiced”(Weber as quoted in Camic 1986, p. 1057). Weber (1968 [1922], pp. 55, 67–68,78, 89, 320) commented throughoutEconomy and Societythat the basis of eco-nomic activity (i.e., exchange, consumption, saving) was conditioned by custom.Custom, convention, and habit may be transformed through enactment, conferring“on them the dignity of oughtness” (Weber 1968 [1922], p. 326). When custom-ary behaviors become expected behaviors, Weber refers to them as “conventions”that may become “laws” or enforced behaviors required on pain of physical orpsychological coercion (Weber 1968 [1922], p. 34).

Weber and Marshall both described custom as interfering with economic de-velopment, but it was Schumpeter inThe Theory of Economic Developmentwho



dissected the reasons that custom acted as an impediment. Economic activity iscarried out in repeating cycles and, over time, economic routines become lost toconscious reflection. “This is so because all knowledge and habit once acquiredbecomes as firmly rooted in ourselves as a railway embankment in the earth”(Schumpeter 1934 [1926], p. 84 as quoted by Swedberg 1993, p. 207). In orderto break with custom one needs new knowledge, a psychological ability to getoutside of customary ways of thinking, and the ability to withstand the sanctionsimposed by upholders of convention. According to Schumpeter (1934 [1926]), itis the entrepreneur who is able to step outside of economic custom in order toestablish new economic practices.

As with these previous scholars, Durkheim, in his early writing, also used rotelearned custom or its synonym, habitus, extensively (Camic 1986). Although not atthe forefront of his later work, Durkheim believed custom underlay social confor-mity on which collective life was based. Whether in his discussions concerning the“force” or “yoke of habit” in elementary “mechanical” societies, or later throughhis study of the division of labor in modern “organic society,” Durkheim relied onthe concept of habitus to capture the deepest layer of human social conditioning thatappeared as “reflex” or “instinct.” Durkheim was quite explicit in his referencesto modern market-based societies as relying on “‘more and more intensive andassiduous work, and [such work becomes] habitual—and habitual in a particularway, since, ‘civilization. . . imposes upon man monotonous and continuous labor,[which] implies an absolute regularity of habits” (Durkheim as quoted in Camic1986, p. 1051). It is only when convention is disrupted that conscious reflectionoccurs and the range of possible alternatives and solutions are entertained.

Pragmatists such as Pierce, James, Dewey, and Mead (Abolafia 2001; Boydston1967–1991; Chiasson 2001; James 1953, 1981) all built on the seemingly con-tradictory notion that limited cognition is the basis of social interaction. Theboundaries intersubjectivity places on human consciousness, and the capacity tomanipulate symbols innovatively and interact, are two sides of the same coin.While constraining to pure and continuous innovation, conventional practices (i.e.,taken-for-granted assumptions and modes of conduct) supply the foundations forstability, precisely because they limit the debilitating effects of interactional un-certainty, a prerequisite of symbolic interaction.

CONTEMPORARY WORK ON ECONOMICCONVENTIONS

Modern sociological scholarship on conventions and like concepts—includinggenre, practice, repertoire, and routine—most often employs the assumptions andperspectives of Durkheim and the American pragmatists. Contemporary researchtends to stress the ways in which actors classify phenomena in order to make themmanageable, and once classified, to select an appropriate program of action. Forexample, Becker, in “The Power of Inertia,” observes “one of the remarkable thingsabout the world of classical music is how stable it is through time” (Becker 1995,



p. 301). He explains this consistency by describing music making as bound up inhegemonic conventions. It is in the minutia of music making (i.e., the traditionalshape of an instrument, the notes it can emit, how one learns to play, the phrase-ology employed by musicians) through which social inertia manifests, carryingconvention into the next moment and, in so doing, circumscribing performance inthe future. Put another way, social relations, in their totality, represent a bundle in-scribed in material technologies, professional standards, and habituated routines.Thus conceived, the potential for coordinated human interaction pivots on boththe stability and predictability of the systems within which humans reside, but theprice to be paid is resistance to change.

In Becker’s case, conventions are represented in both deliberate practices andautomatic routines. Becker’s development of both as co-constitutive in the fomen-tation of social inertia is a relatively rare account of conventions and conventionalpractices. More typically, a cleavage in attention to either one or the other char-acterizes most of the research to date. The remainder of this section is organizedaccording to the distinction between research that looks at tacitly held habitualizedconventions and research that look at consciously applied standards as conventions.

Standard Conventions

If standardized scales, musical instruments, and professional canon enhance thestability and coordination in music making, then we should expect somethingsimilar in other social contexts such as markets and economies. Economic actorsalso agree, consciously, to standards of practice, quality, safety, and so forth ineconomic endeavor. These agreed-upon, explicit conventions are typically calledindustry standards and can emerge as part of the competitive process (e.g., the Ap-ple versus PC computer standard) or can be imposed by government or industrygroups (e.g., National Bureau of Standards, Fair Accounting Standards Board).Standards eliminate some bases for competition, allow others, and stabilize mar-kets around established ideas, technologies, activities, or moral practices.

The literature on economic standards is extensive in economics and businessstrategy (Brunsson & Jacobsson 2000), but there is relatively little work, to date, bysociologists on economic standards. Durkheim’s (1964 [1895]) conception of thesocial fact as external to and coercive of individuals does cover “standards of taste.”Mulligan & Lederman’s article, “Social Facts and Rules of Practice” (1977), takesDurkheim one step further and uses Rawls’s conception of “rules of practice” todistinguish between social facts as regulative rules and rules of practice. Allport’s(1939) J-curve hypothesis and study of conformity represent another perspectivefrom which the problem of standards (and when they are obeyed) is addressed.Leblebici et al. (1991) construct an organizational history of the radio broadcastingindustry and examine standards in that industrial market and the role they play inorganizing the industry (p. 333). Bensen & Farrell (1994) research compatibilitystandards among firms (p. 129). Based on which strategy they judge to be the mostprofitable, firms either seek to establish their technology as the industry standardor shape their technology to fit an existing standard.



Schoechle (1995), using Habermas’s notion of the “public sphere,” addressesthe role that standard-setting organizations have in shaping public policy. Gandal(2002) addresses implications of compatibility and standardization in high tech-nology, internet, and information industries. He concludes that “given the dramaticgrowth of the Internet and information-technology industries in general, and theimportance of interconnection in these networks, the economies of compatibilityand standardization have become mainstream economics” (Gandal 2002, p. 89).While the question of the policy implications of standards has been addressed inacademic and industry literature, policy makers have also taken up this issue. Inthe Technology Preeminence Act of 1991, Congress formally requested a reportthat would examine the use of technical standards and product certification, andthe extent to which promoting international standards would facilitate or impedeinternational trade (National Research Council 1995).

Scholars who study technological change and innovation have also demon-strated the economic importance of firm and industry standards, conventions, andtheir promulgation through “communities of practice” (see Anderson & Tushman1990, Hargadon & Douglas 2001, Henderson & Clark 1990, Rogers 1995, Saxe-nian 1994). Industries and firms have often been noted for their resistance to givingup their existing conceptualizations of their products, services, and standard op-erating procedures in the face of changing material considerations. Resistanceto innovation and social change resides in continued reliance on not only out-moded products (Tushman & Anderson 1996) but also practices (Henderson &Clark 1990) and culture (Saxenian 1994). “Competency traps” based on past ca-pabilities are dangerous to firm survival because they, as bundles of outmodedworldviews and practices, block development of new product and action concep-tions and means for organizing economic action. It is precisely because sharedviews and conventions permit fluid replication and repetition at higher degreesof fidelity than do unroutinized practices and processes that they are socially andsometimes economically efficient (Hannan & Freeman 1984; Nelson & Winter1982; Stinchcombe 1959, 1990), but it is in their routinization that they can alsobecome “pathological” obstacles to adaptation (Beamish 2002).

Habitual Conventions

Although consciously applied economic standards of practice have received agood deal of attention outside of sociology, there is much less research insideand outside of sociology on economic conventions as “habituated normativity,”where largely tacit routinized views direct actor preferences, decision making,and hence behavior repertoires concerning “what ought to be” (but see DiMaggio1997, Berger & Luckman 1967, Bourdieu 1990, Garfinkel 1967). However, otheroverlapping subspecialities within sociology lend guidance to economic sociologyin mapping the direction research in this area could take.

Similar to Becker’s analysis of classical music, science and technology stud-ies have observed how collectively recognized categories and their overlap withartifacts and technologies enable and sustain social stability once these relations



are institutionalized (Bijker & Law 1997, Hughes 1983, Hughes et al. 1987, Latour& Woolgar 1986). These scholars describe sets of ideas, packages, or what Latour(1987, Latour & Woolgar 1986) describes as “lash-ups.” In Latour’s language,an accepted object such as a scientific fact or technology requires a complex as-semblage of active allies and hardware but also routinized procedures that, oncewoven together, sustain it through time. Each aspect of the package presupposesthe existence of all the other elements with which it is imbricated and exerts astabilizing inertial force.

Likewise, neo-institutional theorists Meyer & Scott (1992) have engaged in or-ganizational sociology’s most programmatic attention to the place of conventionalpractice, as reflected in culture, social structure, and routine practices, as the carriersof both structure and agency. They hold that convention(s) (and its variants) informand constrain behavior in a manner that lays the basis for institutional reproduction(see also Scott 1995). Cyert & March (1963) and institutional economists Nelson& Winter (1982) have similarly investigated the place organizational codes of con-duct, protocols, and conventions play in organizational systems. Still other schol-ars of institutional aspects of conventionalized conduct also see them as reflectinginternalized and naturalized cultural rules (Douglas 1986) or habitus (Bourdieu2002a), or as conventionalized behaviors that reflect the tacit or assumed cognitiveboundaries of knowledge for any given actor or actors (March & Simon 1993).What is more, research reveals that actors borrow the action repertoires (Swidler1986), communicative genre repertoires (Orlikowski & Yates 1994), and rules ofappropriateness (Vaughan 1996, Beamish 2000) from others to fit a priori sociallyapproved scripts, which Barley & Tolbert (1997) describe as behavioral regu-larities in organizational and work settings, rather than mental models (see alsoAldrich 1999, Bechky 1999).

These approaches all assume the social and psychological need of actors toreduce uncertainty when faced with equivocal situations. On this, Weick (1979)argues that complex organization itself is an attempt to reduce the equivocality char-acteristic of loosely coupled informal social systems. Organization “serves to nar-row the range of possibilities, to reduce the number of ‘might occurs’” (Weick 1979,p. 40) by establishing frames, definitions of the situation, and a sense of coherenceto phenomena open to multiple interpretations. Conventionalized ways of definingactivity, both of “automatic habituated” and “deliberately applied” sorts, createorder for actors and allow them a basis from which to coordinate their activities.

THE ECONOMICS OF CONVENTION

The French Conventions School, also called the Economics of Convention ap-proach, was started by heterodox French economists studying uncertainty andrisk (Boltanski & Chiapello 1999, Favereau 2002, Thévenot 1998), but it is nowincreasingly populated by sociologists and other social scientists in Europe andelsewhere (Beckert 2002, Gomez & Jones 2000, Wilkinson 1997). Risk is a situa-tion in which outcomes can be calculated (i.e., the odds of some occurrence), but



uncertainty is a situation in which actors cannot assign a probability to the conse-quences of their acts. Conventions School scholars see this as a critical problemfor a traditional economics that assumes rational actors: What is rational underconditions of uncertainty, in situations where preferences cannot be ranked orwhere the interpretation of facts is debatable? For the Conventions School, theprocess of justification (rationalization) is critical to actors assuaging their con-cerns about an unknowable future. Actors work to appear rational, reasonable, andaccountable, a process well recognized by symbolic interactionists. For conventiontheorists, however, justifications can become conventionalized, taken-for-grantedbeliefs about why certain acts and practices are normal and right. Justificationsallow people to move forward without actively calculating and defending eachaction, feeling psychologically affirmed.

Conventions scholars use realist and pragmatist empirical methods (in con-trast to the instrumentalist abstractions of standard economics) to examine howactors actually calculate decisions. Further, they are interested in how economicactors coordinate with each other, given ambiguity and complexity. Whereas othereconomists see markets and hierarchies as coordination devices, Conventions the-orists find economic coordination to be a concern of rational individuals whoachieve it via obedience to rules, norms, and intersubjectively mediated action ofvarious forms. The critical project is to define “thesituationin its temporality, theindividual’suncertaintyabout the identification of the situation and theinterpretiveeffort that is required to determine, together with others, the situation as a sharedand common one” (Wagner 1994, p. 174).

For example, the Conventions School has found an important source of coordi-nation in actors’ agreement on categories, what they call equivalence. Equivalenceis communal agreement on the quality or character of a product, industry, wagestructure, or any other economically meaningful phenomenon. Equivalence is crit-ical to price competition and for market adjustment around prices. Alternativesmust be evaluated as commensurable, a process that is culturally variable (Lamont& Thevenot 2000). Commensuration is a social process worked out collectively(e.g., wage structures as a means of creating equivalence among different skills)and is a process of establishing moral bounds and categories (Espeland & Stevens1998). Wage differences are not the product of market forces: Market forces workaround categories that have been socially established.

Conventions research has used debates about the status of commodities in theformation of the European Union, for example, as a source of data on the pro-cesses of constructing equivalence. Is a cheese that is made of skim milk really acheese subject to the same regulations and tariffs of French full-fat brie (Thévenot1998)? Innovations such as low-fat cheese disrupt received commonsense iden-tities and put in motion debates about the proper qualification (i.e., determiningessential qualities or character) of a market. This is a communal cognitive processand a legitimation procedure. Qualified markets, e.g., French full-fat cheese, eliteuniversity education, and human labor, are socially affirmed, whereas others likelow-fat cheese, on-line education, and human body parts are contested or in theprocess of transformation.



Convention theorists reject dualisms of subject-object and structure-action. Forexample, convention theorists reject the rational actor model underpinning neo-classical economics, a model that assumes a clear separation between the actorand the goal of economic action. In the rational actor model, an economic actoridentifies a goal and rationally optimizes a strategy for achieving it. According toBeckert (2002), however, in much economic activity neither are the goals clearnor the possibilities for achieving them. In fact, much economic activity con-cerns complex and novel situations where possibilities and strategies of actionare uncertain. Rather, in such situations actors construct courses of action that areintersubjectively defensible and sustainable as economically rational acts. This isan emergent process, a performance of rationality that is constructed in interactionwith others and is rational in the sense that it appears rational to self and otherswithin a social setting but not necessarily in some objective external sense. Ra-tional acts become routinized approaches to economic situations. This concernwith rationality as an emergent, interpretive, and performance process is rootedin the perspective of American pragmatism, particularly in the work of Deweyand his concern with habit but also in Schutz’s work on routines, Polanyi’s dis-cussion of “tacit knowledge,” and other scholars concerned with intersubjectiveand noncalculating responses to situations. It is clearly opposed to the objectiveand calculating individual assumed by rational actor theories. According to theeconomics of convention, separating the actor, the action, and the goal is neitherempirically nor ontologically justifiable.

Convention theorists are also concerned with material goods in the system ofmarket relations in which they are embedded, similar to science and technologystudies. A product represents not only the outcome of a material production pro-cess but is at the center of a market world—of contractors, distributors, consumers,regulators—that develops over time in a path-dependent way. Market worlds in-clude taken-for-granted assumptions, practices, and conventions that maintain sta-ble relations. Convention theorists argue that regions become dominant in certainproduct categories, for example, Silicon Valley in high-technology goods, not be-cause of economic factor endowments but because action frameworks “centeredon conventions among economic actors. . . enable them to coordinate, in coherentfashion, ensembles of economic practices leading to successful products” (Storper& Salais 1997, p. 4) and are difficult for others to emulate. Conventions of coordi-nation are historically developed and local, and explain why the same industry isorganized differently in different places. Differences are the result of actors’ prag-matic attempts to coordinate with others over time; multiple means of coordinationare possible.

ECONOMIC CONVENTIONS AS INSTITUTIONALTHEORY WRIT SMALL

Sociological institutional theory assumes the social construction of economic ar-rangements as firms adopt forms and practices in attempts to deal with uncer-tainty. Elites, the state, and powerful others may be the source and maintenance of



institutionalized beliefs and practices such as conceptions of control and gover-nance regimes. Institutional theory assumes meaningful action between economicagents, but commitment to macrohistorical and quantitative data analyses cannotdemonstrate the emergence or dynamics of institutional process and formation.

Conventions theorists see institutions as bundles of conventions that haveemerged as pragmatic solutions to economic problems and have become reifiedas normal. Institutional arrangements may serve elite interests, but conventionstheorists also leave open the possibility that arrangements are merely congealedsuccessful solutions to economic problems, i.e., the French way of organizing.

Institutional theorists have sought to develop more realistic economic under-standings by accounting for the network of relations in which economic actionoccurs. This middle-range approach gets closer to the actor by examining actornetworks but cannot examine the source, meaning, or substance of ties in economicrelations.

Examining the construction and use of conventions can complement insti-tutional and network theories by supplementing undersocialized conceptions ofmarkets, emphasizing markets as evolving reified abstractions that orient actors intheir efforts to coordinate successfully, and stressing the necessarily intersubjectivenature of markets.

ACKNOWLEDGMENTS

Earlier writing on this topic by Nicole Biggart appeared as an editorial on theEconomic Sociology list serve. The authors thank Penney Alldredge for researchassistance in the preparation of this review and an anonymous reviewer for thought-ful critique.

The Annual Review of Sociologyis online at http://soc.annualreviews.org

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