Levels Issues I: Homogeneity and Heterogeneity

30 August 2006 at 10:25 am 1 comment

| Nicolai Foss |

Issues that relate to levels of analysis are some of the most vexing ones in social science, both theoretically and empirically.  I plan to post on levels issues over the coming week or so. Today’s topic: Homogeneity and heterogeneity across levels of analysis.A prevalent idea is that concentrating on one level of analysis — say, the industry — implies that lower levels of analysis are claimed to be populated by homogenous entities.  Thus, the industry analyst when conducting his analysis assumes that incumbent firms are homogenous (an argument that I have often heard adherents of the resource-based view launch against Porter style strategic management theory).  Or, capabilities theorists must assume that lower level entities — that is, individuals — are more or less homogenous, an argument made by Teppo Felin and William Hesterly in their forthcoming AMR paper, “The Knowledge-based View, Heterogeneity, and New Value Creation.”

Sometimes the stronger argument is made that this assumption somehow follows with some kind of necessity; thus, analysis at one level of analysist must imply that lower level entities are homogenous (the much cited 1994 AMR paper by Klein, Dansereau, and Hall seems close to asserting this).

It is far from clear on what basis these arguments are made.

One possibility is that those who make these arguments are making an ontological claim. This is how I interpret e.g. Teppo and Bill’s paper. They essentially argue that capabilities theorists really think that people/employees are homogeneous (and can therefore be “rounded out”), so that all the action (e.g., competitive advantage) takes place on the level of capabilities.

Another possibility is that homogeneity is introduced for epistemic reasons, specifically the analyst’s bounded rationality — á la “We know that the micro-structure is exceedingly complex; therefore, we concentrate on macro phenomena, and we don’t lose any essential information  by neglecting the heterogeneity of the micro phenomena — i.e., we might as well assume that they are homogenous”. 

Both interpretations seem to me to make sense. What does not, however, make sense is the position that concentrating the analysis on one level of analysis must necessarily imply that the lower levels are populated by homogenous entities. For example, when economists do price theory the analysis takes place at the level of a market. However, analysis of individual agents and their choices are necessary to “build” the analysis. This does not imply with any degree of necessity that the analyzed agents are homogenous. Sure, it may be convenient to make this assumption and focus on a single representative agent (as in the Pigou/Robinson analysis of the firm in price theory), but there simply is no logical necessity involved.  

Entry filed under: - Foss -, Methods/Methodology/Theory of Science. Tags: .

Measuring Organizational Form Foucault and Economics

1 Comment Add your own

  • 1. Bo  |  31 August 2006 at 6:16 am

    Good points – but WHO is arguing that concentrating on one level of analysis necessitates that lower levels be populated by homogeneous entities? Most of the research I am familiar with seem to be aware of possible heterogeneity among lower levels but CHOOSE (often grounded in one of the two interpretations you present) to assume away this influence. Prior to multilevel theorizing and modeling, most researchers did not have a useful way of dealing with this heterogeneity and thus assumed it away (with or without good reasoning). If you look at studies after 1994/95 I think you will see this changing somewhat – in part perhaps due to the AMR piece by Klein et al.

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
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Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
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Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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