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hands of a few exchange partners or a single one is a key element of dependence (Pfeffer and Salancik, 1978:52). Moreover, both paradigms emphasize conscious, calculated choices by organizational decision-makers in explaining organizational structure. Although work in each tradition explicitly recognizes that decisionmakers are characterized by bounded rationality, the emphasis is more on the rationality than the bounds. For example, although Williamson discusses the way in which bounded rationality limits people's ability to formulate complete contracts, the notion that decisions to make or buy are based on comparison of governance costs with market-based transaction costs is predicated on the assumption that decision-makers are able to forecast and make complex calculations of the impact of various factors on exchanges (Tolbert and Zucker, 1996). The primary differences between these paradigms stem from assumptions or emphases that characterize the academic disciplines of the primary theorists, namely, economics and sociology. In line with economics, transaction costs analysis assumes that decision-makers are concerned with maximizing profit (of which minimizing costs is an important part). Resource dependence analyses, on the other hand, assume that organizational decision-makers are also concerned with maximizing their organization's power and autonomy; this loosening of the emphasis on profit maximization is more consistent with a sociological approach. Perhaps partly because of its focus on more purely cost concerns as a driver of behavior, a transaction costs paradigm seems in some ways to be more elegant. However, this focus may limit its utility in explaining various types of organizational behavior. Thus, it is not easily extended to consideration of how organizations seek to manage relations with competitors; its use in addressing questions about conditions that are likely to increase the occurrence of competitive mergers, coalitional behavior, or co-optation is unclear. Williamson (1991) does consider a third type of strategy, in addition to market-based and organizationally based exchange relationships, that involves what he refers to as a hybrid form. This is an arrangement where an exchange relationship between partners who are more or less independent is brokered by a third party; as examples, he offers the case of a public utility, whose relationship with customers is overseen by a regulatory agency, and franchises, who operate fairly independently of one another but are governed by a parent company. But the idea that one organization might actually cultivate the dependence of another organization, and be able to do so because of the relative power imbalance between the organizations, does not rest easily within a transaction cost framework. This is precisely what GM did with its suppliers, though, and it was able to do so because it was the biggest game in town. As Pfeffer and Salancik (1978:54) note, GM used to insist that its suppliers (who were nominally independent-certainly not part of the formal structure of GM) allow the company to audit the suppliers' financial records; suppliers were willing to do this because GM had large contracts to award. Auditing further increased GM's power because it then had information about what suppliers' actual costs were and could determine what charges were within a "reasonable" profit margin. By explicitly drawing attention to the use of power

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in exchange relations, resource dependence provides some additional insights into organization and environment relations that might be missed with a transaction cost paradigm alone.

THE INSTITUTIONAL PARADIGM

The underlying assumptions about the nature of organizational decision-making contained in both resource dependence and transaction costs paradigms, as described above, contrast sharply with those suggested by two other major paradigms: institutional theory and population ecology. We described the basic logic of institutional theory in Chapter 3 in some detail, so as with contingency theory, we'll just offer a short recap and a little elaboration here. Whereas resource dependence and transaction cost underscore interorganizational exchange relations as key to understanding how environments affect organizations, institutional theory emphasizes the effects of widespread social definitions of how organizations "ought" to look and "ought" to operate; these sorts of normative forces are referred to as the institutional environment. As we noted previously, theorists have suggested a number of sources that help create the institutional environment: govemment and other powerful resource-controlling organizations that set requirements; professional associations and organizations that have special claims to expert authority and that promote particular practices and arrangements; and networks of organizations whose members observe and often imitate one another (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). Scott (2008) refers to these, respectively, as the regulative, normative, and cognitive dimensions of the institutional environment. In general, institutional theorists predict that as elements of formal structure (e.g., affirmative action offices, chief financial officers, total quality management programs) become institutionalized-defined as right and proper components of well-run organizations by these sources--organizations that don't have these elements will be increasingly likely to adopt them, regardless of whether they have particular problems or issues that might make such structures useful to the organization's functioning (Tolbert and Zucker, 1983). A key problem with much of the empirical work based on institutional theory is that it gives almost no attention to measuring whether some element of structure is institutionalized-widely, normatively accepted or not-independent of the number of organizations that has adopted the structure. (This is also a problem for popUlation ecology's approach to measuring legitimation-a concept that's virtually identical to that of institutionalization-as we'll discuss below.) This lack of separate measures of institutionalization makes it difficult to compare the utility of an institutional explanation with those that emphasize highly calculated, rational choices by organizational decision-makers; the latter approach could conclude that all decision-makers simply reached the same conclusion about the need to adopt a given structure by independent avenues (Tolbert and Zucker, 1996).

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This issue is tied to an assumption underlying this paradigm, that organizational decision-makers are very vulnerable to pressures for conformity and prone to follow the herd, particularly as uncertainty surrounding decisions increases. This assumption has served as the source of some criticism for this paradigm (Hall, 1992; Hirsch and Lounsbury, 1997; Oliver, 1991). Critics suggest that it is based on an "oversocialized" conception of individuals (Wrong, 1961) and that there is no place in it for agency, or independent, purposive action (DiMaggio, 1988). There is certainly some validity to these criticisms. As we noted at the outset of this chapter, one of the things that paradigms do is to focus attention of some selected aspects of phenomena that are to be explained and ignore other aspects. Hence, the resource dependence and transaction costs paradigms emphasize agency and choice and ignore more conformity-driven, less independently calculated aspects of decision-making. Both characterizations of organizational decision-making probably represent accurate depictions, although perhaps at different points in time and under different circumstances. In line with institutional theory's arguments, though, there are a number of studies that indicate that, once a certain number of organizations or individuals have adopted some practice, the strongest predictor of adoption by others is the number of previous adopters (Banerjee, 1992; Bikchandani, Hirshleifer, and Welch, 1992; Fligstein, 1985; Palmer, Jennings, and Zhou, 1993; Tolbert and Zucker, 1983). The popular press also provides some insights into how institutionalization processes shape organizational decision-makers' choices. For example, a New York Times article reported that business firms are establishing formal intelligence departments to keep tabs on competitors from home and abroad. One source is quoted as saying that "understanding your competitors' positions and how they might evolve is the essence of the strategic game" (Prokesch, 1985).

THE POPULATION ECOLOGY PARADIGM

Like institutional theory, the line of work known as population ecology also underscores the "boundedness" of decision processes in organizations, although this issue is relevant to this tradition primarily because of a key underlying assumption, namely, most organizations do not change fundamentally over time (they are "inert"). One of the distinguishing features of population ecology is that it was not developed to explain changes in individual organizations (such as the creation of formal structure or the formation of relations with other organizations); rather it was formulated with the aim of accounting for large-scale shifts that characterize groups of organizations, or organizational populations (Aldrich, 1979, 1999; Aldrich and Pfeffer, 1976; Bidwell and Kasarda, 1985; Carroll, 1985; Carroll and Swaminathan, 2000; Hannan and Freeman, 1977b, 1989; Haveman, 1992, 1993a; McKelvey, 1982). As an example of this kind of change, consider the case of the hotel industry in the United States. For many years, up through the early 1950s at least, this industry was dominated by stand-alone, independent

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organizations-from the small mom-and-pop motor courts that dotted U.S. highways to the grand Plaza Hotel in New York City and the classic Hotel Del Coronado in San Diego. Today, the industry is dominated by big chains-Howard Johnsons, Hiltons, Sheratons, Marriotts, etc.-that have largely replaced the small individually owned motor courts and that have acquired most, if not all, of the original urban classic hotels. Population ecologists would describe this as the replacement of one form of organization (in this case, independently owned, single establishments) by another (corporately owned, multi site chains). Similar population shifts can be seen in higher education, where the once-dominant form of organization, liberal arts colleges, has largely been eclipsed by the rise of larger research universities at one end and community colleges at the other (Kraatz and Zajac, 1996). Yet another example is provided by gas stations, where what used to be common, the full-service gas station with a mechanic on the premises, has been replaced by self-service stations with no mechanic-albeit often with a small food mart. Population ecology seeks to explain how such large-scale shifts come about. This focus on the forest rather than the trees (i.e., popUlation change rather than individual organizational change) provided a new and very generative approach to examining organizations. Given the focus on populations, the first natural question that you might raise is: How do you define an organizational population? This question turns out to be surprisingly difficult to answer simply. Although population ecology draws heavily on biological imagery and evolutionary theory, organizations differ in a number of key ways from biological phenomenon, which can make the analogies problematic (Carroll and Hannan, 2000). In a seminal article, Hannan and Freeman (1977b:937) identify a population as a set of organizations that share a common organizational form and an organizational form as a "blueprint for organizational action, for transforming inputs into outputs." They elaborate:
The blueprint can usually be inferred, albeit in somewhat different ways, by examining any of the following : (1) the formal structure of the organization in the narrow sense-tables of organization, written rules of operation, etc.; (2) the patterns of activity within the organization-what actually gets done by whom; or (3) the normative order-the ways of organizing that are defined as right and proper by both members and relevant sectors of the environment.

In empirical practice, much of the research in this tradition has relied largely on the latter approach, using commonly accepted distinctions among organizations, much like those given in the examples above (Le., individually owned motor courts, liberal arts colleges, full-service gas stations). More recent formal definitions have underscored this; a form is defined as a "recognizable pattern that takes on rule-like standing" (Carroll and Hannan, 2000:67). So how do the kinds of population changes described above occur? As we noted, population ecology is premised on the assumption that most organizations do not change fundamentally over time. That is, organizations are assumed to be characterized by a high degree of inertia, and adaptation to environmental changes is expected to be a rare phenomenon. They may change on the margins