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International Journal of Economics and Finance; Vol. 16, No. 1; 2024
ISSN 1916-971X E-ISSN 1916-9728
Published by Canadian Center of Science and Education
68
New Institutionalism: Public Agents’ Choices Based on Individual
Interests
Jeremias Pereira da Silva Arraes1 & José Matias-Pereira1
1 University of Brasília, Brasilia, Brazil
Correspondence: Jeremias Pereira da Silva Arraes, University of Brasília, Brasilia, Brazil. Tel: 55-61-98176-1858.
E-mail: jeremias@unb.br
Received: November 16, 2023 Accepted: December 15, 2023 Online Published: December 20, 2023
doi:10.5539/ijef.v16n1p68 URL: https://doi.org/10.5539/ijef.v16n1p68
Abstract
This essay aims to explore the emergence of new institutional theory based on the historical context of the
formation of modern society with the change in basic cultural rules. It is observed that there is a change in the
power to govern, which was previously given by God or inherited and now depends on the will of society. A
movement of rationalization of choices emerges that end up leading to private interests. The vision of the matrix of
classic sociological thinkers ends up influencing the intellectual orientations of the Western world and brings
important statements to understand the organizations of modern society. The study concludes that the new
institutional theory and the theory of public choice help to understand the actions of public agents in favor of their
individual interests.
Keywords: neoinstitutional theory, new institutionalism, public choice theory, public agents choices
1. Introduction
Institutions are considered the rules of the game in a society. Institutional change ends up shaping the way societies
evolve, therefore, institutions can be the key to understanding social, economic and political phenomena in a
society (North, 1990).
For centuries the church and monarchs were the main dominant institutions. The right to govern and rules were
established by these institutions until God-given or inherited power came to be threatened by scientific discoveries
and humanist ideas.
This process of rationalization is explained by Weber (2020) in his work Die Protestantische Ethik Und Der geits
Des Kapitalismus, in which there is a focus on modern and capitalist society. For Max Weber, the process of
secularization caused modern society to abandon basic cultural rules that were based on religion.
Marx (2010, p. 2057) , in his critical work on Hegel's philosophy of law, referred to religion as “the sigh of the
oppressed creature, the spirit of a heartless world, as well as the spirit of brutalized states of affairs. She is the
opium of the people.” For Karl Marx there was an explanation for why people sought religion: the church was a
dominant institution that used God to have the power to govern.
Denhardt (2017) explains the importance of the intellectual heritage of social theorists such as Karl Marx, Max
Weber and Sigmund Freud, in the sense that it is necessary to present the thoughts of these theorists, to better
understand the issues involving public organizations. The vision of these three thinkers ended up influencing the
intellectual orientations of the Western world and brought important statements to understand the organizations of
modern society.
Due to their complexity, public organizations are better understood when they are examined in parts, analyzing
their entire composition. The modern study of public organizations involves the understanding of some theories,
such as: organization theory, market theory, theory of democratic control of bureaucracies and theory of limited
rationality. These theories involve several areas of social sciences (sociology, economics, accounting, political
science) and provide the basis for understanding institutional theory, which is the critical intersection of these
concepts (Frederickson et al., 2012).
For Scott (2014), this intercession of institutional theory has been growing since the beginning of the 1970s and
has transformed areas of management, organizational sociology and institutional economics, in addition to having
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a significant impact on studies focused on politics, international business and accounting. Therefore, there is a
continuous need to expand studies so that we can understand not only institutions, but institutional processes, as
there remains a vast field to be explored in relation to the idea, beliefs, emotions and feelings of individuals that
can explain their actions.
The new institutionalism emerged in the early 1980s, motivated by a response to rational choice theory. It
developed in political science amid reactions to the excesses of the behaviorist revolution (Schmidt, 2008; Scott,
2014).
Powell and Dimaggio (1991) cite Durkheim's encouragement to study “social facts as things”, where it is possible
to watch society organized based on its functions. For the authors, the new institutionalism is a reaction against the
behavioral revolution of recent decades, which are related to collective policies and economic behavior as an
agglomerated consequence of an individual choice.
2. Theoretical Framework
The article was built based on the new institutional theory, public choice theory, with a focus on public agents
seeking choices that prevail their individual interests.
2.1 New Institutional Theory
For some time now, institutional theory has provided theoretical support to social science studies, accounting has
been highlighted in this research, given that it is a science that integrates government and organizational actions,
with society being one of the main stakeholders in the performance of institutions and agents (Matias-Pereira,
2021).
The first institutional arguments emerged in Germany and Austria at the end of the 19th century, through the
famous Methodenstreit or battle of methods that launched debate about scientific method in the social sciences.
Issues in economic theory were constantly debated through a dispute between two scholars with differing opinions
(Scott, 2014; Louzek, 2011).
From the study by Matias-Pereira (2021) it is possible to observe that institutional theory has become more
relevant in social practices. Therefore, the range of international research that deals with the topic ends up giving
robustness to its applicability in the field of social sciences, and in the field of accounting science, the areas of
public accounting and controllership deserve to be highlighted, as they are areas that, clearly, involve public
agents.
Meyer (1977) was one of the first theorists who began to look at the new institutionalism. The study sought to
explain how education forms individuals who end up affecting society through their actions. Next, Meyer and
Rowan (1977) study the formal structures of organizations and the main problem that theories face. Therefore,
Powell and Dimaggio (1991) contribute significantly to the new theoretical perception and advance the
development of new institutionalism.
The work of Powell and Dimaggio (1991) The New Institutionalism in Organizational brings many considerations
so that one can understand the institutional perspective on organizations and the axes of the new institutional
theory. To this end, the authors consolidate a series of articles, divided into three parts that address the initial
concepts of organizations, the refinement of institutional theory and empirical investigations.
Studies of organizational and political change clearly clarify that it is difficult to reconcile the rational actor and the
functionalist, where administrators and politicians start to defend programs that are established and are not
implemented (Powell & Dimagio, 1991).
Institutions can be formal or informal in nature. Formal institutions are based on the written laws and rules of a
society, while informal institutions are based on the values, beliefs, ethics and code of conduct of a society, they are
part of the collective consciousness. The rules intentionally created by individuals to deal with social, economic
and political issues end up constituting formal institutions. These rules end up partially responding to the increase
in the complexity of organizational structures (Meyer & Rowan, 1977; North, 1990).
Pierson (2000) highlights that it is increasingly common for social scientists to describe political processes as
“path dependence”, which is related to the new institutionalism and which is treated in politics as a situation in
which the agent's choice is shaped or directed by institutional paths of choices made in the past. For the author,
political development is accentuated by critical moments or economic situations that end up affecting the life of
society.
There are several key elements to new institutionalism, new institutionalists observe all types of individuals
interacting in socially organized environments. These environments are guided by a set of rules, regulations,
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standards and definitions that restrict and shape the actions of all actors who need to comply with these rules.
At the basis of the new institutionalism, Schmidt (2008) highlights discursive institutionalism, which offers a
vision of the role of ideas and discourse in politics. For him, the process of discourse, which is constantly used by
political actors, is a form of interaction that enables the transmission of ideas with the public.
For effective organizations, it is necessary to understand how organizations constrain individuals from acting in
their own self-interest. Furthermore, there are several ways in which informal structures influence the formal
structure of the organization.
Thus, it is possible to observe the behavioral changes of individuals through neglect of the social context and the
durability of agents in power. The durability of social life also began to impact institutions, as demographic issues
end up increasing the cost of institutions, not only because they become larger, but also because they become even
more complex (Powell & Dimaggio, 1991).
For Powell and Dimaggio (1991), individuals seek to maximize their behavior in relation to stable and consistent
preference orders. Thus, it is possible that this behavioral maximization is due to cognitive limit issues, incomplete
information or difficulties in monitoring and enforcing agreements, however some people behave in an
opportunistic manner and end up interfering with rationality.
In modern societies, organizational structures emerge in an institutionalized way, where professions, politics and
government programs are rationally directed towards the creation of products or services. Institutionalized policies,
products, services or programs end up functioning as powerful tools for maximizing individuals (Powell &
Dimaggio, 1991).
2.2 Public Choice Theory
Administration Science and Political Science are related, the first being the result of the second. Administration is
the most evident form of government action, where on one side there is the State and on the other society, which
demands public goods and services and has increasingly participated in the conduct of administration through
public opinion (Wilson, 1946).
Public Choice Theory is considered a phenomenon of Political Science, being the political theory that most
influenced government practice in the 20th century (Andrews, 2004). For Piano (2019), the study of public choice
theory is related to the “economic approach and human behavior”, making it necessary to understand the actors,
institutions and political processes.
Borges (2001) highlights that the theory of public choice understands that public agents do not behave in a
utilitarian manner nor seek the public interest and that the interested party (voter) seeks to choose agents that can
offer political proposals that are capable of maximizing their functions. individual utility in the short term.
Borges (2001) concludes that due to distributive issues and the light of neoclassical economics, democracy and
efficiency are incompatible. and decisions on public goods and services should be decided through voluntary and
unanimous decisions by the interested group, to ensure that the majority coalition does not deprive the director of a
minority.
The study by Jones and Baumgartner (2005) presents empirical evidence on budget distributions. For the authors,
this budget distribution never follows normality and it is clear that the public budget is not incremental, which ends
up deconstructing the idea of one budget being prepared based on another. The incremental budget, in Brazil, for
example, would bring benefits to complying with the spending ceiling adopted by the Union and other federated
entities, considering that this practice addresses both planning issues (continuity of government plans/programs)
and the balance of public accounts, the basis for compliance with the Fiscal Responsibility Law.
The fact is that Public Choice Theory explains this action of behavioral change in budgets brought by Jones and
Baumgartner (2005) because they are public choices that involve private interests. Therefore, the direction of
spending does not follow a normal pattern because it varies according to the majority interest of individuals, and
the public agent is interested in serving these groups, not because demand is decisive for solving a problem, but
because the service that specific audience can bring you a particular return.
According to Ostrom and Ostrom (2004), the problem also lies in the fact that decision makers often make political
decisions within the restrictions of a set of collective choice rules. These decisions end up impacting the eligibility
of the agent who participates in policy formulation or prepares the rules that will be used to formulate policies.
3. Final Considerations
Neoinstitutionalists look at the interorganizational interactions and formal structures in which all political practice
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procedures come to play, but they also look at the entire organizational field. Changing institutions end up shaping
the way societies live. This behavioral change influences the evolution of institutions, which in turn impacts the
performance of economies.
Institutional theory ends up being an intersection between several theories involving social sciences. It is worth
noting that the studies clarify the distinction between organizational theory is not similar to institutional theory and
that the new institutional theory and new institutionalism comprise rational actor models and cultural and cognitive
issues.
The public choice theory of public choice relates to the new institutional theory, when interest groups start to make
choices that do not meet previously planned government programs. There is an intentionality in directing public
spending to benefit the individual in power, putting the democratic state into question, due to the inefficiency of
managing public resources.
The main objective of this article was to explore the emergence of new institutional theory based on the historical
context of the formation of modern society with the change in basic cultural rules. It is possible to observe the
importance of classical sociological thinkers in the development of organizations and institutions.
Neoinstitutionalists believe in the legitimacy of the organization being based on the stability of persistence and
order and, therefore, any type of action must maintain this same stable environment. The focus of analysis in old
institutionalism is informal interactions within organizations.
They realized that organizations seek legitimacy and acceptance from society at large so they have a defined
standard of rules, as is the case with most theories, subsequent theorists discovered that the old theory of
institutionalism did not explain everything, so criticisms are adopted the old institutionalist approach because it
does not consider the influence of cognition and learning on human behavior and motivation.
It is possible to highlight some considerations based on the theoretical study: institutions can be the key to
understanding social, economic and political phenomena in a society; Monarchs and the church had their power to
govern weakened due to scientific discoveries and humanist ideas; studying “social facts as things” can explain the
behavioral revolution of recent decades and cultural and cognitive issues can explain the behavior of individuals in
seeking to maximize their returns.
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