By Seth Frey

What is the difference between institutions and organizations? Is there even any need for a distinction? A simple definition makes the need for both concepts clear:
Organizations are collectives whose members mobilize diverse resources toward a shared goal, while institutions are collectives whose members mobilize shared resources toward diverse goals.
These definitions explain why both attract bounded rational choice theory in different ways. Rational choice tools like game theory and decision theory have been fundamental in the development of both organizations and institutions, but institutional constraints center game theory for explaining member behavior, as finite resources become an arena for strategic contests, while organizational constraints center decision theoretic explanations, as the shared goal, whether the cause or result of aligned incentives, reduces the power of interpersonal strategy to explain behavior. These definitions also explain why it is meaningful to treat organizations and not institutions as coherent agents capable of their own decision making, and why Wikipedia attracts both lenses. With editors constrained both by the encyclopedia's goal and collective action challenges to maintaining it, Wikipedia and other peer production institutions stand out as hybrids that can help scholars reconcile and integrate the institutional and organizational approaches to human collectives.


Interesting distinction you draw in your parallel definition (organizations: diverse resources → shared goal vs. institutions: shared resources → diverse goals) that I'm not sure I've encountered elsewhere? cf. Douglass North's definition of Institutions: "the humanly devised constraints that structure political, economic, and social interaction."[1]


Aaron Shaw · 23 Jan, 2023

Do you think it possible to extend this to the juxaposition of social enterprizes and traditional ones?

Di Wu · 28 Jan, 2023

@Aaron, yes, "Why do we need another definition?" I guess my motivator is the problem that many organizations fit North's definition of "institution," just as many institutions fit others' definitions of "organization" (e.g. Simon's as a "decision-making system"). You can see this definition as a refinement on those: Institutions are based on humanly devised constraints on resources, organizations on goals.

Seth Frey · 29 Mar, 2023

That's interesting. I have no idea. I'd guess that where a traditional one organizes around a goal constraint, a social version of the same enterprise faces both goal and resource constraints, because it's trying to do the same work with the extra challenge of solving the collective action problems that social enterprise brings. So under my definition, traditional enterprise is organizational and the social equivalent is both organizational and institutional. But this conclusion falls less out of deep insight and more out of the assumptions I'm using to make your question mappable to my framework.

Seth Frey · 29 Mar, 2023

Useful resource:
Cole, D. H. (2013). The varieties of comparative institutional analysis. Wis. L. Rev., 383.
This collection of definitions of the word "institution" has a table distinguishing those which include and exclude "organization"

Seth Frey · 25 Apr, 2023
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Seth Frey



Published: 14 Jan, 2023

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