Social Networks, Markets and Institutions: A Sociological Perspective on the Work of Marcel Fafchamps and Neo-Institutional Economics

In this paper I analyse the work of the Stanford University neo-institutional economist Marcel Fafchamps. For a sociologist, his work is interesting because he has managed to enrich his neo-institutionalism with insights from the embeddedness perspective. He has also over time became more aware of the non-rational motivations of human action. In this review of his work, I show how he has managed to avoid some of the limitations of neo-institutionalism. I also argue however that there are a number of lacunae in his work that indicate the necessity for a serious engagement with sociological theory. In this paper I explore some of the outlines of what such a confrontation will involve.

I argue in particular that Fafchamps's acknowledgement that the interests of members of one social network may not coincide with the interests of another, or with that of the broader society, has important implications that can transform the collective action problem from a single to a manifold one. In other words, there is not a single collective action problem, but as many as there are groups in society. The solution of one has implications for the solution of others, as well as the relationships between groups. It means that it is essential to theorise the relationships between groups of various kinds.

Connected to this is the criticism that neo-institutionalism ignores the necessary distinction between culture and society. As a result, the term 'institution' is incorrectly used to describe both normative arrangements and groups/organisations. It should be reserved for the former, which falls within the field of culture. Society, on the other hand, consists of agents in the form of individuals, groups and organisations in interaction. Society is the field of power and helps to determine institutions as much as institutions shape society.