Multi-Culturality and Economic Organization
| Nicolai Foss |
Transaction cost scholars have increasingly become interested in the way economic organization is shaped by the “institutional environment,” for example, how the legal regime impacts internal organization or the boundaries of the firm (e.g., this paper). A paper that seems to have stimulated much of this is Oliver Williamson’s 1991 paper on “Comparative Economic Organization.”
To my knowledge relatively little interest has been devoted to the how the softer rules of the game, notably those that may be placed under a “culture” heading may impact economic organization, although quite some research in international business has dealt with this (e.g., this paper).
As far as I know no research has dealt with the implications of “multi-culturality” within a given territory for economic organization.
Perhaps this is because the notion is a relatively recent one; one that perhaps primarily belongs to the realm of politically correct discourse, and because we don’t have really convincing economics-based conceptualizations of culture, not to mention what it means to have multiple cultures inside a given geographical territorium.
Nevertheless, this is a potentially rich research subject. It may also become a pressing one, as the US and the Europe (and other regions in the World) become increasingly multi-cultural. Here is some extremely prelim speculation.
Cultures may be thought of, in a very crude characterization, in terms of focal points that pick out solutions to underlying games, some more like coordination games and some more like PD games. Although we know very little about how players reason when they are placed in new games, there are some indications that they rely on precedents and analogies. To put it crudely, immigrants may play games in their new country the way they used to play them in the old country. Some of this may be dys-functional as when players from low-trust cultures play defect strategies in high-trust cultures. Players from high-trust cultures may become suckers in low-trust cultures. Also, cultural mix may increase information and communication costs for obvious reasons.
A likely result is that market transaction costs increase. (In turn this may give rise to increased intra-culture trade and decreased inter-culture trade). What will happen to internal transaction costs? To the extent that people self-select into firms based on culture, internal transaction costs may not increase. The net effect is that firms would expand their boundaries.
Anyway, this is merely one possible, and loose, take on what is a potentially important and certainly unexplored research area in applied new institutional economics. Any opinions and suggestions out there?