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American Economic Association

Melding Sociology and Economics: James Coleman's Foundations of Social Theory Author(s): Robert H. Frank Reviewed work(s): Source: Journal of Economic Literature, Vol. 30, No. 1 (Mar., 1992), pp. 147-170 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2727881 . Accessed: 23/04/2012 13:58
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Journal of Economic Literature Vol. XXX (March 1992), pp. 147-170

Melding James

Sociology and Economics: Foundations of Coleman's Social Theory*


By ROBERTH. FRANK
Cornell University

I thank Ronald Breiger, Philip Cook, John Freeman, Thomas Gilovich, and an anonymous referee for helpful comments on an earlier draft. Introduction
PUBLISHERS receive copies of reviews of their books, they quickly scan them for possible quotes for use in promotional materials. They are often frustrated to discover that a reviewer really liked the book, yet never managed to say so in a clear, unequivocal way. The people at Harvard University Press will experience no such frustration with this essay on James Coleman's application of rational choice theory to the classical issues of sociology. ProJHEN

fessor Coleman'sFoundationsof Social Theory


is a masterwork. Epic in scope, it is clear, engaging, and forcefully argued. Traditional sociologists will be unable to ignore its bold new agenda for their discipline. And the book will have a lasting impact on economics, political science, psychology, and other disciplines concerned with human behavior. Having issued this ringing endorsement of the work as a whole, I hasten to add that there are many points on which I find myself in substantial disagreement with Coleman. On some occasions, he pushes the rational choice theory * James S. Coleman. Foundations of Social Theory. Cambridge, Mass. and London: HarvardUniversity Press, Belknap Press, 1990. Pp. xvi, 993. ISBN 0-674-312250-2.

too far; on others, not nearly far enough. But one of his great virtues is his remarkablewillingness to articulateclear theories and commit himself to their predictions. In the process, he leaves himself open to being proved wrong, and indeed he sometimes is wrong. Yet how much more satisfyingis his approachthan the familiaralternativeof constructingvague ad hoc explanationsto fit known fact patterns. Foundations of Social Theory is organized into five parts. Part I, ElementaryActions and Relations, introduces the basic building blocks of the theory-actors, resources,interests, individualrights, and relatonshipsinvolvingauthority and trust. Part II's focus is the "micro-tomacro transition";it applies the theory of rational individual behavior to the units developed in Part I to deduce how systems of actors will behave. Here, Coleman is concerned with social exchange, crowdbehavior,and the emergence of social norms. In Part III, Coleman constructsa theory in which the principalactor is not the individual but the corporation. His aim is to explain how and why individualsempower formal organizationsto act on their behalf, and the means whereby such authority can be revoked. PartIV, entitled Modern Society, employs the theories developed earlier to shed light on developments in contemporary social and economic life. Coleman devotes Part

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emphasis Coleman places on interactions and feedback effects between individuals:
There is a broadlyperpetratedfictionin modern society, which is compatible with the development of the political philosophy of natural rights, with classicaland neoclassicaleconomic theory, and with manyof the intellectualdevelopments (and the social changes which generated them) that have occurred since the seventeenth century. This fiction is that society consists of a set of independent individuals, each of whom acts to achieve goals that are independentlyarrivedat, and that the functioning of the social system consists of the combination of these actionsof independent individuals. This fiction is expressed in the economic theory of perfect competitionin a market,most graphically in Adam Smith's imagery of an "invisible hand." (p. 300) Coleman's point-that the behavior of aggregate systems is often very different from the behavior of representative agents-has not been neglected completely by economists. Indeed, Coleman's brand of methodological individualism has much the same flavor as the one developed so successfully by Thomas Schelling in his 1978 book, Micromotives and Macrobehavior.' Yet despite the growing influence of Schelling's work, a large proportion of economists, and perhaps an even larger proportion of sociologists, continue to model aggregate behavior as an inflated version of the representative agent's behavior. So there is still much for both fields to learn from Coleman's analysis of how interactions and feedback affect behavior.

V, his final segment, to a mathematical formalization of many of the theories developed earlier. Unlike most sociologists, Coleman is an unapologetic rational choice theorist, and there is no essential difference between his concept of rationalityand the one used by most economists:"We say that we understandthe 'reasons' why the person acted in a certainway, implying that we understandthe intended goal and how the actionswere seen by the actorto contribute to that goal"(p. 13). How, then, do Coleman's theories of behaviordifferfromthe ones familiar to neoclassicaleconomists? One important difference lies in the constraintsimposed on, the respective theories by their differentmediums of exchange:"as much as any single difference, it is the absence of money that sets off noneconomic exchanges from economic ones" (p. 119). Coleman likens many forms of social exchange to the kinds of economic transactionsthat took place in primitive societies under the barter system. Before an exchangecould occur in such societies, there had to be a "double coincidence of desires." That is, each person had to want a good possessed by the other, and each in turn had to be willing to give up his own good in order to acquire possession of the other's. As goods exchange developed in market economies, this constraintwas largely eliminated by the introduction of money. In social exchange, by contrast, the constraint remains prominent, for there is no similarly well developed common currency. The need for double-coincident desires in social exchange can be eliminated only by indirect means-through the use of "social capital." Social capital is akin to what Tom Wolfe called "the favorbank"in his novel, The Bonfire of the Vanities. A does a favor for B, who reciprocatesby spending some of his own social capital to induce C to do something for A. Throughmuch of Foundationsof Social Theory, Coleman'sattempt to explainsocial behavior focuses on an analysis of networks of social capital. In social environments that lack such networks, he argues, social exchange tends to be inefficientin the same ways that bartereconomies lead to inefficient allocations of goods. A second differencebetween Coleman'stheories and conventionaleconomic theories is the

Social Norms
As sociology sought to establish itself as a discipline at the turn of this century, its most pressing need was for a distinctive patch of intellectual turf, a set of issues and methodological perspectives not yet appropriated by existing disciplines. The rational choice approach was the undisputed territory of economics, and sociology wanted no part of it. Whereas econo1 Coleman's intellectual agenda in Foundations is, if not a clone of Schelling's, then at least its fraternal twin. Yet, curiously, Foundations makes no mention of Micromotives, or of any of Schelling's other work on related topics.

Frank: Revtew of James Coleman's Foundations of Social Theory


mists chose the purposeful individual actor as the unit of analysis, sociologistsinstead focused on groups.2 Sociology did not deny the existence of individuals, of course; rather, it saw their behavioras driven not by self-interestbut by group norms and other macroforces. One of the most fruitfulapplicationsof Coleman's approach,with perhaps the greatest potential to inform economists, is his account of the emergence of social norms. Economists have largely ignored the existence of such norms; and when they have addressed them specifically, it has usually been to assert that rationalagents would never follow them.3 Sociologists, by contrast,often seem to believe that social norms are the only important determinant of human behavior. Coleman'sapproachembodies at least an implied criticism of economists, for he acknowledges the obvious importanceof social norms. But he is quite explicitly critical of his fellow sociologistsfor having failed to address the origins of such norms:
For many social theorists norms are starting points of theory. The image of man demanded by a theory that begins at the level of social systems is homo sociologicus, a socialized element of a social system. The questions of moral and politicalphilosophywhich addressthe fundamentalstrain between man and society cannot be raised. With this image of man as

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The condition under which interests in a norm, and thus demands for a norm, arise is that an action has similar externalitiesfor a set of others, yet marketsin rightsof controlof the action cannoteasily be established, and no single actor can profitably engage in an exchange to gain rights of control. (p. 251) Thus, for example, the fact that many of the costs of a poorly maintained lawn are external to individual homeowners might help explain the demand for a social norm that encourages homeowners to mow their lawns regularly.4 The notion that norms might help internalize such externalities is not novel with Coleman. Edna Ullmann-Margalit (1977), for example, proposed a version of this idea in a book published almost 15 years ago. Coleman's contribution is the additional observation that the mere fact that a norm might be nice to have is by no means sufficient to bring about its existence. The demand for norms arises from externalities, yet there are many externalities for which there are no corresponding norms. Exactly what governs the supply of norms? Coleman recognizes that the critical problem on the supply side is how to overcome the freerider problem inherent in providing sanctions against violators. To do this effectively, we need "connectedness" (closely linked networks of personal relationships), social capital, and the like. Using a sequence of carefully crafted examples of simple, multiperson public goods problems, Coleman shows how relationships between actors sometimes provide mutual incentives to impose sanctions on noncontributors. Thus, for example, the citizens of small communities, who interact with one another regularly, are better able to mount effective sanctions against norm violators than are the citizens of large urban areas. Yet even people who live in cities are sometimes able to sustain effective norms. To illustrate, Coleman offers these examples: A three-year-oldchild, walkingwith its mother on a sidewalkin Berlin, unwrapsa small piece of candy and drops the cellophane on the sidewalk. An older woman who is passing by scolds the child for dropping the cellophane and ad4Cooperatives, condominiums,and other residential collectivities solve the same problemthroughformal contractualmeans.

a socialized element of a social system, it becomes impossible, within the frameworkof social theory, to evaluate the actions of a social system or a socialorganization.Germanyunder Hitler or Russia under Stalin is indistinguishable as a nation-statefrom Switzerlandin any evaluativesense, and CharlesManson's Jim and Jones'scommunes, which were directed toward death, are morallyindistinguishable froman Israelikibbutz,which is directed towardlife. (pp.
4, 5)

Coleman insists that group norms and other macro-level forces must be understood as having resulted from the purposive actions of rational individuals. His account begins with the assertion that the demand for a norm arises because of externalities:

Heinz Hollander1990. See also Robert Sugden 1989.

3 For an exception, see

2 For a discussion, see MarkGranovetter1990.

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portant motive for not free riding. After all, if external rewards were all that counted, then we could abstain from sanctioning and later report falsely to friends that we had sanctioned, thereby gaining their support for free. And this possibility suggests a further difficulty: if people cared only about external rewards, why would a person's friends even believe her statement that she had incurred costs to sanction a violator? On the adherence side of the norm market, there are similar contradictions, for we know that people often follow norms even when external sanctions are not a credible threat. For example, the norm to tip in restaurants is almost impossible to enforce by external sanctions in the case of people who eat at restaurants along interstate highways. Those who leave tips under these circumstances are almost certainly responding to internal, rather than external, incentives. Yet if people respond to internal, nonmaterial rewards, we seem forced to abandon the purposive rational actor model, a difficulty that Coleman clearly recognizes: To examine the process whereby norms are internalized is to enter waters that are treacherous for a theory grounded on rational choice. Asking the question of how individuals come to have the interests they exhibit is ordinarily not possible in constructingsuch a theory. (p. 292)5 Despite his misgivings, Coleman forges ahead. He notes that internalization may be accomplished by parental training and speculates on the nature of the process. Parents clearly benefit, he argues, if they can teach their children to obey their rules. And it benefits the child to be receptive to such training, he continues, because the parent is in a position to mete out punishment to those who are not. But Coleman's account leaves a central question unanswered: Why don't parents just teach their children to be cooperative only toward family members, and opportunistic toward people outside the family? Some of the more detailed features of Cole'Some economists have addressed the issue of
preference formation. See, for example, Jack Hirshleifer 1987; George Akerlof 1983; and Robert Frank 1987.

monishes the mother for not disciplining the child. A three-year-oldchild, walking with its mother on a sidewalk in New York City, unwrapsa piece of cellophaneand dropsthe paper on the sidewalk. An older woman is passing by but says nothing, not even noticing the action of the child. (p. 245) It is easy to see that the New York City environment might be deficient in connectedness and social capital, and that it might thus be difficult for New Yorkers to enforce an anti-litter norm. But Berlin is also a large city. Why is the norm effective there? Coleman offers these thoughts: the sanctionermay have been able to bring up the event in subsequent discussionwith others who share the same opinion or feeling about the event and would provide encouragingcomments . . . One difference between the older woman in Berlin and the older woman in New YorkCity may have been that the formerspent evenings with others like herself, with whom she could discuss the shortcomingsof the younger generation'schild-rearingpractices and arrive at consensus about what is right, and the latter spent evenings in an apartment alone. (p. 283) This account is troublesome on several grounds. First, even New Yorkers live in local neighborhoods, have friends, belong to organizations, and so on. We thus have no reason to think it more likely that the New York woman spent evenings alone than that the Berlin woman did. More important, Coleman's account implies that Berliners who do spend a lot of time alone would have been unlikely to chastise the mother of the offending child. But does Coleman really believe that the Berliner who chastised the child experienced an immediate deficit in satisfaction that was not replenished until later that evening when supported by her friends? As someone who has been chastised by elderly Berliners on several occasions for jaywalking on the Kurfurstendamm, my own sense is precisely to the contrary: the chastisers would experience an immediate decline in satisfaction if they witnessed an offense and failed to speak out. External rewards for sanctioning offenders undoubtedly do sometimes exist. But Coleman pushes the rational choice model too far when he suggests that such rewards are the only im-

Frank: Review of James Coleman's Foundations of Social Theory


man'saccount of internalizationare also problematic. He predicts, for example, that parents in cultures where children leave home early will invest less in teachingnormsbecause there will be less time for them to reap the benefits of their children having internalized them (p. 297). But this argument is shaky even if we acceptall the premises of the narrowcost-benefit calculus on which it is based. In Coleman's account, parents weigh the cost of instilling norms, which is incurred during early childhood, against the present value of the stream of benefits from sharing living quarters with more considerateoffspring.The difficultyis that if parentsdiscountfuture benefits at the market rate of interest, then the size of this present value streamwill not be very sensitive to differences in the age at which children leave home. And as Coleman is well aware, there is much evidence that people often discountfuture benefits at rates much higher than the marketrate of interest.6 (Even MiltonFriedman,when confrontedwith dataon how people spend windfall income, conceded a planning horizon of only three years.) Coleman weakens his case here by tryingto extractmuch more fromthe rational choice model than it can possibly hope to
deliver.7

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Coleman's explanationof the internalization of norms is unsatisfyingon other grounds. In particular,most parents would be puzzled by its implicit assumption that their primary motive for teaching their children honesty was to prevent theft within the family. Indeed, most parents would be mortified to learn that their adult children were stealing from outsiders, even if they could be assuredthat their children would never be caught and punished. It seems more descriptive to say that a parent's proximate motive for instilling norms is to produce
6 See, for example, Jerry Hausman1979. 7A more likely explanationfor the reduced effort

devoted to instilling norms is that with two-generation families, the cost of instilling norms is higher thanin three-generation families. Colemanalso notes that high status families invest more in instilling norms than do low status families, and argues that this is because the high status families have more to lose from the actionsof a waywardfamilymember (p. 298). Fair enough, but perhapsa more important reasonis that instillingnorms requiresdiligence, patience, and skill, qualities that help explain which families achieve high status in the first place.

children who will ultimately assume the role of responsible citizens. The difficultywith this assumption, from Coleman's perspective, is that it leaves unexplained why parents might hold such a motive, which, after all, seems to conflictwith the family'sabilityto acquirematerial resources. On the subject of intrinsic motivation, Coleman has erred not only in pushing the rational choice frameworktoo far, but also in not pushing it far enough. For once we recognize that intrinsic motives play an instrumental role in a person's ability to achieve material rewards, the rationalchoice model providesa straighiforward frameworkwithin which to inquire "how persons come to acquire the interests they exhibit." Elsewhere (Frank 1987, 1988), I have argued that being motivated by various internal, psychological rewards often helps people achieve what would otherwise be unattainable material objectives. The argument in brief is that people thus motivatedare, in perhaps subtle ways, observably,different from others, and also much more attractiveas partnersin prisoner's dilemmas and other ventures that require trust and commitment. If a genuinely trustworthy person is observably differentfrom an opportunist, even if only in a statistical sense, then such persons can interact selectively with one another and reap the benefits of cooperation in prisoner's dilemmas. And this fact provides self-interested parents with a perfectly intelligible motive for socializingtheir children to be trustworthy.8 As Coleman makes clear, social norms are of tremendousimportancein the taskof explaining behavior, and economists can ill afford to ignore this message. Coleman is also on target in criticizing his fellow sociologists for treating social norms as exogenously given. And he has shown that a narrow cost-benefit calculus can help explainthe supplyof and demandfor social norms. Yet contraryto what Coleman suggests, many of the free-riderproblems we encounter, especially those related to the sanctioning of violatorsof socialnorms, simply cannotbe overcome by purposeful rearrangementof material incentives. To explain why people do not free ride in these circumstances,we have no alterna8 See also Akerlof 1983 and Hirshleifer 1987, for further elaborationson this argument.

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zations, find that trust of all sorts is readily placed in them. Their path in life is cleared of the kinds of obstacles that can be removed through the placement of trust by others. In contrast, there is a large set of other persons for whom this is not true: young persons, persons who are out of work, women who do not work outside the home, self-employed persons such as writers and artists, and retired persons. All these persons have more difficultyin carrying out even the everydayactivitiesof life which require some trust on the part of others. (p. 185) Note here the potential for even small initial differences to be self-reinforcing through time: Someone who occupies a favorable initial position, perhaps by virtue of her affiliation with .a respected employer, has an easier time securing her first loan, credit cards, and the like. These make possible the establishment of a favorable credit history, which in turn provides access to larger loans, lines of credit, and so on. The potential for instability in such processes is evident. Coleman cites the vivid example of how faculty members form opinions of graduate students. A's opinion of G is influenced by B's, which is influenced by C's which in turn depends solely on D's. If D changes his mind about G for some reason, the entire department is likely to follow suit. Much of the appeal of Coleman's book stems from his frequent attempts to enlist his theories to help explain the puzzling observations of everyday life. For example, he asks, "When a person meets someone new who might become a friend, why is it generally said that it takes some time to develop trust? Why should the initial estimate of trustworthiness be an underestimate of the true probability rather than an overestimate?" (p. 104). The answer, Coleman suggests, follows directly from the cost-benefit calculus: A possible solution to this puzzle may lie in the values of the potentialloss and the potential gain. Assuming that a person has a standard estimate of the probabilityof trustworthiness, p*, for the average person he meets, based on past experience, then when in a situationcalling for placement of trust in someone new, he will place trust if p*/(l - p*) is greater than LIG [where L is the potential loss, G the potential gain]. When it is said that a person must come

tive other than to invoke internal motives. But these motives need not remain mysterious from the perspective of rational choice theory.

Trust
Trust and, more generally, cooperative behavior of many different sorts have found an increasingly prominent place on the social science agenda in recent years. As in the case of social norms, Coleman pursues these issues in his characteristic hard-nosed way, and, here, too much of what he says will be of immediate interest and appeal to most economists. In defining trust, Coleman says that "Situations involving trust constitute a subclass of those involving risk. They are situations in which the risk one takes depends on the performance of another actor" (p. 91). As with other issues, Coleman takes a cost-benefit approach to the decision whether to trust someone: "individuals will rationally place trust if the ratio of the probability that the trustee will keep the trust to the probability that he will not is greater than the ratio of the potential loss to the potential gain . . ." (p. 104).

The reasons that affect the likelihood of trustworthy behavior in Coleman's framework thus rest largely on the familiar logic of incentives in repeated prisoner's dilemmas. With these incentives in mind, Coleman notes that bilateral trust relationships tend to be more stable and productive than unilateral ones. The reason is that if each party not only trusts, but is also trusted by, the other, then possibilities for mutual sanctions are much greater. Perhaps less familiar to some economists will be Coleman's emphasis on the importance of intermediaries and other network effects in the establishment of relationships involving trust: The importanceof the relation of employee or debtor in establishing intermediaries in trust is apparentfrom the very widespread use-in job applications, in applicationsfor credit, in applicationsfor a telephone or a lease on an apartment,and in other areas-of both employment references and credit standings (credit cards held, loans outstanding and from what institutions, and so forth). The result is a skewed distributionof trust placement in persons, by other persons and by corporateactors. Certain persons, such as those employed in managerialpositions in large respected organi-

Frank: Review of James Coleman's Foundations of Social Theory


to develop trust in another, however, the context is ordinarilythat of a relatively close relationship;in which the potentialloss fromtaking anotherinto one's confidence or exposing one's weaknesses is especially great. . . . (p. 104) In this situation, it seems more parsimonious to say that the initial estimate is not an underestimate at all, but rather an estimate with higher variance. In the process of getting to know others, we tend to discard those who reveal themselves to be untrustworthy. Thus, as time passes, the average trustworthiness found in surviving relationships rises. Also, the growth of mutual sympathy and other emotional bonds causes trustworthiness to rise over time for a given relationship. Coleman is right that in close friendships people often reveal information that would be very costly if it were made public. But the fact that we reveal such information under these circumstances seems more likely the result of our having arrived at a confident assessment of high trustworthiness than the cause of an initially mistakenly low estimate of trustworthiness. As in his treatment of social norms, Coleman's discussion of trust sometimes demands more from the narrow cost-benefit calculus than it can reasonably deliver. Consider, for example, his use of the logic of continuing relationships to explain the following case: a young man in militaryservice was hitchhiking home to spend his leave with his family. Another hitchhiker, also a serviceman but from anotherbase, got a ride in the same car. When the first serviceman got out because his route diverged, the second asked if he could borrow a dollar. The first made the loan; the second took his name and address and said he would certainly repay the dollar. When the first serviceman arrivedhome and mentioned the incident to his father, the father said, "Forget the loan, and be happy it was so small. It is likely you will never see it again."The motherchided the father, telling him he had no faithin human nature. The father replied that it was precisely his knowledge of human nature that led to his prediction. The second serviceman, having nothing to gain in the future by remembering the loan, would never be reminded of it, however honorablehis intentions, and it would fade into oblivion. (p. 109) Coleman's sympathy lies clearly with the serviceman's father here, and while both may feel

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that the boy's mother's heart is in the right place, both view her as hopelessly naive in her beliefs abouthumannature. Assessmentsof this sort, which are common among rationalchoice theorists, have led to justified skepticismabout the rational choice model's ability to predict human behavior. For while various empirical studies confirmthat there is often less cooperativeness in transitoryrelationshipsthan in continuing ones, there is also overwhelming evidence of substantial levels of cooperation in even purely anonymousrelationships.The sociologist Harvey Hornstein (1976), for example, planted hundreds of "lost"wallets on the sidewalks of New YorkCity to see whether people would return them. Each wallet contained a small amount of cash and various identification cards with the "owner's"name and address. More than half the wallets were returned with the cash intact. Similarly, tens of millions of Americansdonate anonymouslyto privatecharities and vote in presidential elections. Such evidence obviously provides no guarantee that the hitchhiker in Coleman's fable will repay the one-dollar loan. But if a shrewd gambler had to bet, he would almost surely bet against Coleman. Coleman's discussion of trust has much in common with the political scientist Robert Axelrod's discussion of cooperation(1984)and the sociobiologistRobert Trivers'sdiscussion of reciprocal altruism (1971). In each case, the author describes cooperation in repeated games as "trustworthy"; because of the material yet incentives created by the possibility of retaliation in repeated games, such behavior seems more aptly described as "prudent."Defection is more likely in one-shot prisoner's dilemmas than in repeated prisoner'sdilemmas, but contrary to the apparent belief of many rational choice theorists, it is far from assured. Corporate Behavior The Principal-AgentProblem For much of its history as a discipline, economics has viewed the firm as a black box, something that did whatever had to be done to maximize profit. More recently, however, economists have begun to grapple with the fact that managersand other employees have inter-

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Weber in modeling organizationalbehavior as if these conflictinginterests simplydid not exist: "The fact that the persons who are employed to fill the positions in the organizationare purposive actors as well is overlooked" (p. 423). In general, Coleman's explanationof system behavior requires that the interests of individual actors be taken explicitly into account. His approachinvolves three components: a theory of rational action at the individual level; the micro-to-macrotransition, whereby each individual'sbehavioris aggregated;and the macroto-micro transition, whereby information regarding the state of the system is transmitted to individuals, who may then modify their behaviorin the light of that information.The functioning of the principal-agentrelationshipprovides a good illustration of these three components: Rational actionat the microlevel is the prinof cipal'smaximization utilityand the agent's of maximization utility. The micro-to-macro the of transition comesaboutthrough quantity by and product produced theseactions the disand tribution incomebetweenthe principal of transitionis the agent. The macro-to-micro feedback processthroughwhich the quantity of of product the distribution income(and and enin otherconditions anypractical application) of ter into the utilityfunctions the principal andthe agentandaffecttheiractions.(p. 153) A voluminous economic literature takes up the question of how to design the macro-tomicro transition so as to bring worker performance maximallyin line with the interests of owners. The familiarpiece-rate pay scheme is often cited as an example of a macro-to-micro transition with many attractive features from this perspective. Colemanjoins many economists in criticizing piece-rates on grounds that it is often impractical to monitor quality (p. 154).9 But Coleman parts companyfrom traditionaleconomic views on principal-agentproblems when he discusses having the agent "identify with" the principal as a means of controlling the agent's behavior. He notes that the benefit of such a relationship
9But even where quality is easily measurable, workers often reject piece rate schemes, possibly because of their desire to limit interpersonal competition. See Frank 1985, ch. 5.

ests of their own, and that owners are unable to perfectly monitor and control their agents. Coleman devotes long sections of Foundations to discussion of the principal-agentproblem, about which he offers many interesting and novel insights. He then applies these insights to a variety of issues related to the behavior of corporationsand their optimal institutional design. Coleman begins with an illuminatingsurvey of the history of the common law of agency relations:
This class of social transactionsis fundamental, for it provides a means by which interests can be pursuedfarbeyond the capacitiesof the original interested party. It is not the only such means, but it is frequentlyused when an actor with interests to pursue has a sufficientquantity of resources, but not those of the appropriate kind to realize the interests (for example, has money but not the appropriateskills). He may then wish to use those resources to provide a kind of extension of self. (p. 146) Following Richard Posner (1972), Coleman claims that common law is a more useful model for social theory than is statutory law: "Statutory law, consisting of legislative statutes, is much less useful than common law for the development of social theory. The latter, proceeding through the process of case resolutions, continually evolves incrementally toward internal consistency. Statutes undergo such an evolution in jumps" (p. 147). Yet common law courts may find it difficult to act when circumstances dictate a bold departure from the status quo. It is difficult, for example, to imagine FDR's New Deal having emerged from piecemeal decisions in common law. Under two common law principles-"that the agent must not allow his interests to affect actions covered by the agency relation, and that the principal, not the agent, is liable for actions undertaken by the agent in the course of agency . . . the principal agent pair becomes a single corporate actor in relation to the outside world, an actor with augmented resources but a single set of interests" (p. 151). As useful as this common law principle may be as a matter of legal and social policy, it does much to obscure the fact that there are many conflicting sets of interests within any organization. Coleman argues that sociologists have been wrong to follow Max

Frank: Review of James Coleman's Foundations of Social Theory


to the principal is clear. But why, he asks, shouldan agent identifyhimselfwith the principal? Coleman's answer is that the agent gets more utility (or less disutility)from his work if he can adopt the principal'sinterests as his own (p. 161). But this is like saying that we could be happier if we developed a taste for cheap. food and housing. Maybe so, but surely there are limits to such bootstrap methods of augmenting happiness. Perhaps a more plausible explanationhere is that a principal is simply willing to pay more for an agent who can demonstratethat he shares the principal'sinterests. Coleman mentions two classes of cases in which an agent will cede control of his actions to the principal: "In the first class one actor vests authorityin anotherbecause the firstactor believes that he will be better off by following the other'sleadership. He vests rightsof control unilaterally,without extrinsiccompensation.In the second class the actor transfers rights of controlwithoutholdingthis belief, but in return for some extrinsiccompensation"(p. 72). Coleman calls relationships of the first type "conjoint," and cites as an example the case of people who voluntarilyjoin a commune to follow a charismatic leader. Relationshipof the second type he calls "disjoint,"and by base these he has in mind the relationship between the workerand the owners of a corporation. Coleman continues: In bothcasesthe subordinate's interestslead, in the absence special of correctives, reduced to levelsof performance. otheraspects the But of behavior differ In markedly. conjoint authority structures subordinates' the interestslead to of publicsupport norms encouraging perhigh even thoughprivatebehavior formance, may notaccord thosenorms; disjoint in with authority structures subordinates' interests to no lead suchnorms,exceptin the presenceof special incentive such structures, as group piecerates. (p. 80) People who choose to follow a leader without monetarycompensationdo indeed seem more likely thanpaidcorporateemployees to respond to norms of the sort Coleman has in mind. But surely Coleman goes too far when he says that there are no such norms in disjoint authority structures. It is not uncommon for economists to ignore concepts like "professionalism" and "corporateculture"in their study of corporate

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behavior, but Coleman must be nearly alone among sociologistsin adoptingthis position. To be sure, the fact that paid workers in organizations are responsive to such nonmonetaryforms of controlis a challenge to the simplest versions of the rationalchoice model. Elsewhere in his book Coleman boldly attempts to explain such apparent anomalies. Here he seems content simply to ignore them. InstitutionalDesign Features Primarily in response to competitive pressures to exploit economies of scale, there has been a trend towardever largercorporatestructures since the earliest days of the industrial revolution. As organizationshave increased in size, the problems of maintainingeffective control have multiplied. Throughout this process, basic features of corporate institutional design have undergone a parallel evolution. A criticallyimportantpart of this evolutionary process, Coleman argues, has focused on the basic mode of maintaining economic viability in organizations. Coleman identifies three such modes: 1. Reciprocalviability:each pairwiseinteraction produces benefits for both participants. 2. Independent viability: each employee produces net benefits for the corporation and benefits from remainingwith it. 3. Global viability: each employee finds it worthwhileto stay and the corporation has a nonnegative operatingbalance. The move from reciprocalto independent viability provides a rationale, essentially similar to the ones discussed by Ronald Coase (1937) and Oliver Williamson (1975), for organizing production within firms. As corporate actors have grown larger and more complex, there has been a movement from independent viability toward global viability. Coleman warns of a danger in the trend toward global viability, despite the greater flexibility it affords:those who are paid less than the values of their respective marginalproducts will be bid away by competitors, leaving the corporationwith a workforcethat can not sustain a nonnegative operatingbalance. The solution, in principle, is to pay each worker the value of his marginalproduct (VMP), thus re-

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ing his or her position in the wage distribution of the firm. The ablest employees are paid less than their respective VMPs, true enough. But this does not confront potential entrants with a profit opportunity, for their wage payments must also include compensatingdifferentialsfor internal position.1 In sum, the dangers Coleman sees in the trend towardglobal viability seem a bit off target. Yet he is clearly on the mark in seeing that institutionalarrangementswithin the firm often affect its ability to survive. As one specific step to make corporate production more efficient, Coleman suggests the possibility of returning to reciprocal viability in some instances. "In a hotel, for example, the restaurantmanager, the barbershop manager, and the managerof the valet service may not be employees of the hotel but independent operators" (p. 433). By following this route, Coleman notes, "the benefits of weakening the requirement of reciprocal viability to that of independent viability are missing, but the drawbacksof global viability are also avoided" (p. 434) There are indeed often telling efficiencies in franchisearrangementsof the sort he describes. But it is less clear that such arrangementsinvolve any real sacrificeof the flexibilityinherent in the global viability standard.The hotel manager, for example, can offerwhatever terms she sees fit to attract the services of a restaurant franchise. If she views having a restauranton the premises as essential to the success of her overall mission, she can subsidize the operation of the restaurantshould that prove necessary. If we ignore whatever indirect benefits motivate this type of subsidy, the hotel appears to be operating under the global viability criterion. But if we take these indirect benefits into account, it is back under the independent viability criterion. And if we take as given that the hotel manager and franchisee would not continue their relationshipunless it was mutually advantageous, the hotel may also be seen to be operating under reciprocalviability with respect to its franchise relationships. In such relationships, there appear to be no important distinctions between Coleman's concepts of
" For an extended discussion of this point, see Frank 1985, ch. 3.

storing independent viability. But this, Coleman says, is impracticalfor three reasons:
First, not all compensationin disjointauthority structuresis in the form of money wages. . Second, because of the interdependence of activities and because many employees' activities consist primarily of overseeing a production process, it is often difficultto separate out the marginalcontributionof each actor. And third, because of collective bargaining agreements (andother socialconstraints),the firmis powerless to pay each employee an amount equal to his marginalcontribution.(p. 430) How serious are these problems? First, the fact that not all compensation comes in the form of money creates no difficulty. To retain its ablest employees, all the firm has to do is assure that the total value of their monetary and nonmonetary compensation is as great as their respective VMPs. If competitors can pay more, then the employees should move. Second, the practical difficulty of identifying individual VMPs confronts not only the firm but its potential competitors as well. If anything, these potential competitors are in a handicapped position to bid for the firm's best employees because they know even less about their productivity than the firm itself does. Finally, collective bargaining can cause a problem only if the incumbent firm is subject to it while potential entrants are not. In such situations, the union and the firm have a common interest in seeing to it that the firm remains viable. Moreover, the social capital implicit in the union's activities may increase productivity for the incumbent firm, an advantage that can compensate for the firm losing its best employees to nonunion rivals. 10 Coleman goes on to note that payment according to individual productivity is also made difficult "by the fact that workers evaluate their wages relative to others in the same location. This would prevent incentive payments from approximating the wage that corresponds to marginal productivity" (p. 431). But this too does not hamper the firm in its efforts to retain its most able employees. Part of every employee's wage is a compensating differential reflect10 See Richard Freeman and James Medoff 1984, for a discussion of how unions might increase productivity.

Frank: Review of James Coleman's Foundations of Social Theory


reciprocal, independent, and global viability. Coleman employs his viability concepts to draw parallels between capitalist corporations and socialist nation-states:
A capitalistcorporationwhich operates according to global viability and a socialist state are similar. A principaldifference is that the state has monopolycontrol over populationand land and can thereforesurvive even though it might not be viable without this monopoly power. A corporationis disciplined by the market, even if it does not extend that discipline internally, and cannot survive if it fails to maintain its global viability. (p. 435) This distinction seems increasingly tenuous, however, in the light of recent developments in Eastern Europe and the Soviet Union. According to Coleman, states, like corporations, have been moving from independent to global viability, often with similar ill effects: Perhapsthe best exampleis the state'sreplacing the familyas the majorsocialwelfareinstitution
of society.
. .

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does not follow that the best strategy for an organization is to entrust all employees with the implementation of their own ideas. After all, the tendency of employees to behave energetically in implementing their good ideas is just as powerful when they are given a chance to implement their bad ones. Moreover, there are many employees who are quite adept at coming up with useful new ideas, yet hopelessly incompetent when it comes to implementing them. Thus there will always be limits to the firm'sability to avoid the NIH syndrome. The mere fact that such a syndrome is observed is not by itself evidence that corporateinstitutions are designed suboptimally. These quibbles aside, there is no question that Coleman does a real service by his attempt to enrich the Weberian model of the corporate actor. Individuals within organizationsclearly do have, and attempt to pursue, interests of their own, and theories that ignore this fact are bound to give misleadingaccountsof organizationalbehavior.

. the criterion of independent

viability of the family is being replaced by the criterion of global viability, and the interest of the family as a corporate actor in maintaining independent viabilitythroughsupportand care for its unproductivemembers, is being eliminated. (p. 435) As in the case of the private firm, the remedy, Coleman suggests, is to return to the criterion of independent viability, "applied not to each individual but to small subunits in the society which have the possibility of continuous viability (for example, extended families may have continuous viability, whereas individual persons and nuclear families do not, because of age, infirmity, or incapacity)" (p. 435). Coleman offers several other observations about how corporate institutions might be rearranged to enhance efficiency. He notes, for example, a generalized lack of group enthusiasm for ideas that originated outside the group (the "Not-Invented-Here," or "NIH," syndrome). Coleman's conclusion is that the firm should let the group that comes up with an idea or innovation be responsible for its development and implementation. Now, it is hard to quarrel with the claim that a manager or group will pursue its own ideas with greater energy than it will pursue the ideas of others. Yet it surely

Collective Behavior
The power of Coleman's approach-rational transiindividualbehavior, the micro-to-macro tion, the macro-to-micro transition-is nowhere more apparentthan in his analysisof collective behavior (a term he uses to describe crowd behavior and kindred phenomena): The eclecticism-or, one mightsay, the intellectual disarray-ofthe microfoundation of sociologicaltheoryis evidentfroma comparison of the receivedwisdomaboutbureaucratic authorityand the receivedwisdomaboutcollective behavior (thatis, phenomena as riots, such mobs,panics,crowdbehavior, fads,and fashions). The ideal type of bureaucracy enviis sionedas having singlepurposive a actorat the with the retop of the hierarchical structure, mainder the structure of occupiedby entities that differlittle fromthe partsof a machine. Theirpurposesor interestsnever play a role in theclassical theory organizational of functioning. . . . MaxWeber's plaintive aboutbucry man reaucratic . . . is notreallyaboutmodern manbut aboutWeber's of conception modern man-a robot the employ the bureaucracy. in of Yet these "robots" the samepersonsconare whomobservers collective of behavior cerning

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ernment releasingits pressure, it takes up arms
against it" (p. 471). Coleman notes the challenge that this pattern seems to pose to rational choice theory. Scholars who have addressed this challenge have generally framed theories that involve frustration. For often unspecified reasons, expectations often rise more rapidly than actual conditions once things start to improve, creating a gap that leads to revolution. The problem with explanations of this sort, Coleman argues, is that they have nothing to say about how frustration at the level of the individual translates into the often highly organized, purposive activity we observe in actual revolutions. In short, there is no micro-to-macro transition in these theories. Coleman's alternative explanation is a "power" theory of revolution. "If revolutionary activity and support for the revolutionary activity of others are regarded as rational actions, it becomes evident that such activity will be more likely to occur as those who have an interest in seeing the authority system replaced come to have a belief that they will succeed" (p. 480). As people dissatisfied with the current regime come, for whatever reason, to think that their chances of overthrowing the regime have increased, this can explain their sense of frustration that the regime is still in power. "But this frustration will be only an epiphenomenon, an incidental consequence of the opponents' increased belief in their own capabilities" (p. 484). This is clear thinking and there is a lot more

have a wholly different conception. They are described as "excitable,""emotional,"or "suggestive"; their behavior exhibits "contagion"; they are subject to "hypnotic effects of the crowd."That is, they are irrational,disorderly, unpredictable, and spontaneous, close to the opposite pole fromthe bureaucratic man Weber envisioned as the typical man of the future. Such an intellectual disarrayis one that sociologists have learned to live with. Social theory has too often taken the easy path of creating, conceptually,exactlythe kind of creatureat the micro level that by simple aggregationwill produce the observed systemic behavior-whether that systemic behavior is the orderly and mundane functioningof a bureaucracy the spontaor neous and emotional outburstsof a crowd. The correct path for social theory is a more difficult one: to maintain a single conception of what individualsare like and to generate the varying systemic functioning not from different kinds of creatures, but from different structures of relations within which these creatures find themselves. (p. 197) Coleman uses the rational model with the linkages and feedback loops that generate micro-to-macro and macro-to-micro transitions to analyze such phenomena as fire panics, bank runs, fads, fashions, etc. He also applies the model to the subject of revolution. Coleman complains that most scholars who study revolution focus on the wrong question: "the precise question researchers are examining is not 'For which social systems will revolutions occur?' but rather 'in those social systems in which a revolution does occur, what are changes that lead to its occurrence?'" (p. 469). This orientation, Coleman argues, has caused other scholars to overlook the role played by democratic institutions in determining whether revolution occurs. For example, Aquino in the Philippines and Allende in Chile both ascended to power by democratic means, making violent revolution unnecessary. The paradox of revolution is that it is not most likely when material conditions are at their worst. If, anything, the opposite is true: "When general impoverishment has increased, the population appears to have sunk into an increased passivity" (p. 471). Quoting Tocqueville, Coleman notes that "when a people which has put up with an oppressive rule over a long period without protest suddenly finds the gov-

of it in Foundationsof Social Theory. Social Choice


No theory of social behavior is complete without some means for dealing with the question of how groups make decisions. Coleman believes that sociologists have given far too little attention to social choice, a topic about which he has many things to say that should interest not only sociologists, but also economists, political scientists, and philosophers. Coleman begins by noting that an ideal social choice mechanism should have at least the following four properties: 1) consistency; 2) veridicality (reflects well the interests of members); 3) action potential; and 4) nondivisiveness (p. 375). He then surveys the well-known literature

Frank: Review of James Coleman's Foundations of Social Theory


that demonstrateshow and why even the most widely used social choice mechanisms fail to satisfy all these criteria. This material will be familiarto most economists. Colemanbreaksnew ground, however, with a provocativediscussionin which he arguesthat analoguesof many of the imperfectionsin social choice mechanisms are also found at the individual choice level. Consider, for example, the problemof independence from irrelevantalternatives, which is familiar at the macro level. There were initiallytwo candidatesin the 1983 Chicago Democratic mayoral primary, Jane Byrne and HaroldWashington.In pre-election polls, Byrnecame out well ahead.Then Richard Daley entered the race. And when voters went to the polls, Harold Washingtonemerged the winner, Byrne second, and Daley third. At the macro level this result seems paradoxical.But there is a simple explanationfor it at the micro level: Washington'swin was widely attributed to Daley's entry having split the white vote. So far no surprises. But now Coleman points out that even at the micro level we often see decisions influenced by the introductionof irrelevant alternatives. Consider the following example based on the work of Joel Huber et al.: A group of students is first asked to choose between two apartments,A, which is close to campus but expensive; and B, which is farther from campus but cheaper than A. The distance and rent parametersare calibratedso that students split roughly 50-50 between A and B. A second group of students is then asked to chose from a set of three apartments-A, B, and C, where A and B are as before and C is slightly farther away and more expensive than B. As expected, no students in the new group choose C, which, after all, is dominated by B. But the additionof C to the choice set dramatically increasesthe proportionof students who choose B.'2 Coleman concludes that "if the apparent
12 See Huber, Payne, and Puto 1982. The authors explainthat subjectsoften find A and B hardto compare and thereforefind it difficultto choose between them. With the additionof C to the choice set, subjects now have one pair of alternatives for which choice is easy, because B is superiorto C along both of the relevant dimensions. B's easy victory in its contest with C apparently endows B with a "halo effect" that makes it more attractive in the choice between A and B.

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irrationalityor incoherence that is found at the corporate level is also found at the individual level, the faultmay lie not with the social-choice procedures but with the axiom itself" (p. 399). Coleman'sown favored social choice mechanism is a procedure he calls Bordaelimination, which worksas follows. First, each person ranks each of N alternatives under consideration. Next, the alternativewith the least supportover all,pairwisecontests is eliminated. People then rankthe remainingN-1 alternatives.The alternative with the least support over all pairwise contests among these N-1 is then eliminated, and the process continues until there is only one remainingalternative(p. 411). Coleman argues that Borda elimination has numerousdesirableproperties, but laments the fact that its implementationmight be impractical in large systems. With modern information equipment, however, this problem pIrocessing could be solved. A potentially much more serious difficulty is that Borda elimination, like other rankingschemes, is also subject to strategic manipulation. People have incentives to misrepresent their rankingsin early rounds in order to eliminate the most powerful competitors to the alternativethey most prefer. Coleman follows the lead of economic theorists in looking for social choice mechanisms that, like Borda elimination, are based only on ordinal rankings of alternatives. One obvious flaw in all such mechanisms is that they make no allowance for differences in intensity of preference.'3 Suppose, for example, that nonsmokers constitute 45 percent of the population, smokers the remaining 55 percent, and that nonsmokerswould be willing to pay $100 each to have smoking prohibited in public buildings, smokers only $10 each to avoid the prohibition.Any decision rule based on ordinal rankwill retain smoking rights in public buildings. Yet clearly the nonsmokerscould be compensated for ceding these rights. So why not just use cost-benefit analysis?
13 Coleman refers briefly to point voting schemes, in which each person is given an equal allocationof points, which she can then use to vote for various policy alternatives.But whereasvotes based on actual wealth holdings can be shown to produce Paretooptimal allocations, votes based on arbitrarypoint allocations will in general leave room for mutually beneficial gains from exchange.

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sated by simply lowering their tax rates.14 Nor do anomalouscases in which cost-benefit criteria support botb the adoption of a policy and its abolitionconstitute a compelling reason for switchingto socialchoice mechanismsbased only on ordinal rankings. Such cases arise only when wealth effects implicit in a change from the status quo are large. Yet most social policy decisions involve only very small changes in individual wealth. More important, the effect of employing the cost-benefit criterion is to maximize wealth over the long run. It makes no sense to abandon this criterion because it can be linked to anomalousreversalsin individual cases. Colemanhasjoined the many esconomists and other social choice theorists who have invested their energies in the search for a social choice mechanism that is based only on ordinal rankings. This search has arisen out of a misguided focus on the effects of individual policy deciof sions and the impracticality makingcompensation payments on a case-by-case basis. Once we focus on finding a general policy for making large numbers of social decisions and recognize that compensationfor general biases is possible through the tax system, it becomes clear that we have had a perfectly good social choice mechanism all along, namely the cost-benefit criterion.15

Coleman and other analystsare quick to reject criterion on the grounds that the Kaldor-Hicks the compensationpayments are never actually carriedout. On this view, there are two problems: 1) that an uncompensatedloss is unjust; and 2) that policies chosen under the K-H criterion would be systematicallybiased in favor of wealthier citizens. Others complain of anomalous cases in which the K-H criterion would approve of not only a move from policy A to policy B, but also the reverse move. Such objections, however, do not withstand close scrutiny. First, it is a mistaketo evaluate the efficacyof cost-benefit analysis in terms of its effectson specificindividualsin a single case. If the cost-benefit criterion is employed as a policy for resolvinglargenumbersof socialdecisions, what is relevantis the pattern of decisions it produces. Though a person may suffer an uncompensatedloss from many policy changes that pass a cost-benefit test, he will also reap an unencumbered benefit from many others. What matters is the net effect of the policies implemented under a cost-benefit criterion as comparedwith the correspondingfigure for the most favorablealternativesocial choice mechanism.

It is probably true, as critics of cost-benefit analysis complain, that the willingness-to-pay criterion systematicallyfavors the interests of the rich. For example, to the extent that income elasticities of demand for parkland, environmental cleanliness, and other social amenities exceed one, the rich will tend to favorspending a larger share of nationaloutput on such items than will the poor. But even if the interests of the rich and poor never coincide, it is wasteful and inefficient to respond by adopting social choice mechanismsthat assign equal weight to the interests of rich and poor. If a rich citizen would pay $100 for the policy she favors, and a poor person would pay only $10 to avoid the same policy, it is in the interest of rich and poor alike that the policy be implemented, with a compensationpayment between $10 and $90 flowingfromrich to poor. Criticsmiss the point when they complain that such compensation payments would be impracticalon a case-bycase basis, for compensationneed not be made on a case-bycase basis. If the use of cost-benefit criteria is found, on the average, to be biased in favor of the rich, the poor can be compen-

Constitutionsand the Power of Corporate Actors


Historically,most economic analysis of organizationalbehavior has focused on profit-seeking firms. In recent decades, however, there has been growing attention by economists to the behaviorof nonprofitfirms, clubs, and even governments, which have long capturedthe interest of sociologists.What motivatesthe forma14 It would hardly make sense to avoid the costbenefit criterion on the grounds that the political system would not make the requried adjustmentin taxes for the poor. After all, failure to strike such a bargain would result in an outcome that is worse for rich and poor alike. 15 More precisely, my claim is only that the costbenefit mechanism does a better job of aggregating individual preferences than do alternative mechanisms based only on ordinalrankings.Whether existing social institutions cause individual preferences to develop in optimalways is of course a completely separate question.

Frank: Review of James Coleman's Foundations of Social Theory


tion of organizationswhose primary function is something other than to make money? Coleman responds that "It is when the social structure will not support a norm that is sufficiently effective to satisfythe interests of the potential beneficiaries of the norm that the question arises of constructingan explicit corporateentity having greater powers than does a norm or set of norms"(p. 327). Colemanoffersa positive theory of the development not only of corporatestructuresbut also the nation-stateitself. When a group'sconstitution is drafted, how will rights be allocated among members? In Coleman's view, the answer depends on the initial distributionof power among the actors. The power of an individual actor "resides in his control of valuable events. The value of an event lies in the interests powerful actors have in that event" (p. 133).16 No sentimentalist, Colemanassertsthat those with the most power when a constitution is drafted tend to allocate rights in the way that most benefits them personally: "althoughone can conceive of a social contractamong rationalindividualsresulting in an optimalconstitution,the existence of heterogeneity among individuals with respect to power and with respect to the mix of beneficiary and target interests will almost certainly lead to an excess of rights being transferredto the corporateactor"(p. 348). This is obviously not an empty claim. Yet what about the role of ideals in the formation of constitutions?Jane Mansbridge,Steven Kelman, and others have argued persuasivelythat politicaldecisions often differsignificantlyfrom the dictates of narrow self-interest, and that political ideals like equality and public service appear to play a major role in the process.17 Coleman discusses various criteria for opti16 Coleman notes the apparentcircularityof these definitions:"Although pairof definitionsis circuthis lar, the concepts of value and power thus defined are not empty of content" (p. 133). It is not clear why Coleman believes that the value of an event lies only in the interests powerful actors have in it, for the interests of other actorssurely matteras well. Thus, for example, an event in which manyunpowerful people are interested can also have high value. If interests may be taken as given, this modification in the definitionof value makesColeman'sdefinitions lose even the appearanceof circularity. 17 For a collection of essays on this general theme, see Jane Mansbridge1990.

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mality of constitutions, and many of his fellow sociologists are likely to take issue with some of what he says here, if only because they misconstrue it. For example, Coleman says that "A constitution is optimal if in the system that results, rights for each class of actions are allocated in accordance with the interests of those who, postconstitutionally, have powerweighted interests that are stronger than the opposing power interests" (p. 355). With its casual use of the term power, this formulation sounds much more threatening than the usual descriptionsof marketoptimality. Yet all Coleman is saying here is that a constitutionis optimal if it is not possible to reallocate rights to create Pareto improvements.'8 Coleman discusses various ways in which power comes to be transferredto corporateactors who then use it to pursue ends incompatible with individualinterests. The shareholder's interest is that more products be sold, and one way to serve this interest is to entice customers into saving less. by the use of advertisements. We might all agree that we would be better off if none of us were thus tempted. But there is a collective action problem. It is not in the interest of any single group of shareholdersnot to advertise. In discussing the threat posed by corporate actors, Coleman sometimes invokes the asymmetry in power between the large corporation and the individual actor: "A transaction between a large corporate actor and a person is extremely asymmetricbecause of the asymmetry in size and power" (p. 553). Here he is on shaky ground, for the relative size of the two actors has very little to do with the balance of power between them. We may grant, for example, that the University of Chicago is a large, powerful corporate actor, but this does not mean it has the ability to dictate the terms of employment to its individualfaculty members.
18 Other parts of Coleman's discussion of optimal constitutionsare less easily interpreted. For instance, one of the criteriahe describes for an optimalconstitution he calls "individualoptimality,"about which he has this to say:"Ifan allocationof rights is individually optimal, every actor is either better off with that allocationor at least as well off as he would be with another allocation"(p. 353). But how can there possibly be a system in which the allocationof rights poses no distributionalconflict between individuals?

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work, it is difficultto monitor the performance of caregivers. These observations will strike a resonant chord in many readers, but they also raise this troubling question: Why do parents settle for this state of affairs?Why don't they switch to part-time employment or take turns staying home with the children, thereby to provide the more nurturing environment children need? The response we are accustomed to hearing fromparentsthemselves is that they can'tafford to, but this raises even more troubling questions, as Coleman implicitly recognizes. Production per capita in the U.S. has not grown rapidly in recent years, but it is nevertheless dramaticallyhigher than it was in the 1950s, when parentsspent significantly more time nurturing their families. Given that we are richer now, why can't we afford to devote as much attention to our children as before? Coleman's response is that parents rationallychoose to in'vest less in their children now both because children leave home earlier and because children are no longer a major source of support during parents'old age: "The shift of responsibility for the care of the dependent aged changes, of course, the incentives for the first stage of the relation of mutual dependency in the family. If children are no longer an investment in one's future, their upbringingand education is no longer an investment irnone's future" (p. 585). This account has problems. One is the fact that children are not a majorsource of support for elderly parents is hardly a new development. Contraryto popularimpressions,the net transferof wealth has always run stronglyfrom parents to offspringthroughout the life cycle,
even in primitive societies.19 Even more troubling, this explanation of the difficulties of the modern family raises the question of why current conditions are regarded as problematic in the first place. If parents deliberately choose to invest less in their children because they stand less to gain from such investments, on what grounds can they then complain about the diminished performance of their children? On Coleman's explanation, parents could have had better children had they wanted to, but
19 For evidence on this point, see Paul Turke 1989. But for a contrary view, see J. C. Caldwell 1983.

Indeed, in the case of certain facultymembers, the reverse is more likely the case. For instance, the prospectof JamesColeman'sleaving for a post at another university constitutes a significantthreat to the University of Chicago. Coleman'sown professionalwell being, by contrast, would be very little diminished by the prospect of having to leave the University of Chicago. In general, it is the competitive balance between actors, not their relative size, that generates power asymmetries. Being big is far from the same as being a monopsonist. And as I will argue in the next section, Coleman's failure to appreciate this distinction has also led him down the wrongpath in his analysis of how modern corporate structures have affected family life.

Current Social trends


Two centuries ago, most men and nearly all women did the bulk of their work at home. Today, almost all men and a large and growing proportionof women work outside the home. The implicationsof this change have been the subject of much attention by modern social commentators,Coleman among them. Indeed, of all the subjects he treats in his book, none seems to engage his energies more fully than this one. The problem, as he sees it, is that the needs of modern corporateactors are strongly in tension with the needs of the family. With fewer and fewer parentspresent in the neighborhoods duringworkinghours, networksof socialcapital decay or disappear,no longer able to serve the needs of children. As this happens, the care of children is increasingly relegated to television and hired outsiders, both of which Coleman sees as problematic. The difficulty with television, he explains, is that its programming is designed for a single purpose, namely, to get the child's attention so she can be shown commercial messages. Only by accident will such programminghappen to be best also for the child's development as an integrated person. And there is considerable evidence that the content of much commercialtelevision programming is positively harmful to development. The difficulty with hiring outsiders to care for your children is the familiarprincipalagent problem. If both parents are away at

Frank: Review of James Coleman's Foundations of Social Theory


simply chose to deploy their resourcesin other, more satisfying,ways. There is an alternativeexplanationof the deterioration of family social capital, one completely faithfulto Coleman'smethodologicalapproach, but that does not require his two problematic assumptions. To begin, suppose parents act purposively, and that their goal is to launch their children as successfullyas they can. As Coleman says, in preindustrialsociety, this goal was served by both parents working in or near home, for there were reallyno practical alternatives. This arrangement, Coleman suggests, was of obvious value for the task of nurturingchildren. With the originof corporate actors and more formallyorganized work, the possibility arose for one parent, usually the father, to accept higher paying employment outside the home. But at that time the need to perform daily chores without modern appliances was a practical barrier that prevented both parents from working outside the home. The next stage in the evolution of the family is still playing itself out. With the advent of electrical appliancesand other labor-savingdevices, it has become possible for both parents to work outside the home. At this stage, too, parents face a choice between whether to remain at home or take paid employment on the outside. As at the earlier stage, here too the tradeoffis between a substantialincrement in the material resources available to the family, on the one hand, and diminished family social capital on the other. Within broad limits, having more material resources is beneficial for children, while having less parental attention is bad. Once more, let us assume that parents are rational, that they love their children, and place high value on preparingthem to do well in life. Is it likely that when such parents voluntarily choose to work outside the home, the result, on balance, is worse for children than if one or both parents had spent more time in the home? If parents are rational, the answer seems to be no. And yet the effect of individually rationalparental decisions may nonetheless be precisely the unattractive outcome Coleman and other social critics have described. The reason is that the material resources earned outside the home create powerful social externalities. To illustrate,considerhow materialresources

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are deployed to educate children.20Virtually all parents recognize the critical importanceof education to their children'sprospects for leadiug successful lives. Within any society, education is an inescapablyrelative phenomenon. To be "well educated" means simply to be better educated than one's peers. In the U.S. and many other Western countriesthat rely primarily on public education, the parental strategy with respect to education is thus clear: it is to buy or rent a house in the best affordable school district. When a second parent considers employment outside the home, the plus side is that the additional earnings will facilitate a move to a better school district. When this benefit is weighed against the cost of a decline in contact with children in the ho-me, the choice often seems all too clear. Taking the job isn't ideal, but it is better than the alternative. Yet the collective effect of such choices is likely to be far from what most parents had hoped for. Ha^ving two-earnerfamilieshas given us more income, and this has led us to bid up the price of access to the best schools. But it has not changed the fundamentaldistribution of educational opportunity. Today, just as before the move to two-earner households, only a tenth of our children occupy seats in top-decile schools. In the familiarstadium metaphor, all spectators leap to their feet to get a better view of an exciting play, yet when all stand the view is no better than if all had remained seated. Here, parents spend more time at work hoping to move their children up the social ladder, yet when all work longer hours, relative position on the social ladder remains unchanged. From the perspective of the individualfamily, parents are speakingintelligibly when they say that both must work or else they will be unable to affordthe things their children need most. Yet at the macro level, we see the profound contradictionthat today's society cannot affordto provide as well for its children as could the much poorer societies of the past. To resolve this contradictionwithin a rationalchoice framework, we need not assume that people have ceased to feel concern for the well being of their children. Nor need we assume that the
20 For a more detailed discussion of the argument that follows, see Frank 1985, ch. 7.

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revise the tax schedules to make part-timework and single-earner households financially more attractive, and so on. The failure to appreciate the distinction between corporatesize and corporatepower also appears to have strongly colored Coleman's ratherchilling portraitof the role of the corporation as a purveyor of goods, which is akin to the one offered by John Kenneth Galbraithin The New Industrial State. In Galbraith'srevised sequence, the products offered for sale are governed not by the desires of consumers, as in the traditional economic model, but by the convenience of large producers. Coleman offersthis characterization:
This suggests that there may be developing, in societies containingmany large corporateactors, a condition which may be described as parasitism.Corporateactors are the parasites, and naturalpersons are the hosts. Althoughthe parasites not only feed off the hosts but also providefood for them, the rationalefor describing the relation as parasitism,rather than as a more symmetric symbiosis between two components of a system, is that the corporateactors effectively control the system. Since corporate actorscontrol the system, the state of the other parties, the naturalpersons, is such as to maximize the corporate actors' utility, rather than to maximize their own utility. They become, in effect, slaves, maintainedat a level of satisfaction that is less than possible given their resources. (p. 634)

primary motive for investing in children is so that they can care for us duringold age. Rather, it is sufficientto observe that when significant externalitiesexist, the collective consequences of individual decisions are often far from what decision makersintend. Here, the relevant externality is that one family's attempt to move forward in the social hierarchy has negative consequences for where others stand in that same hierarchy.In the presence of such an externality, the fact that individualsfreely accept less time at home in returnfor higher monetary earningsdoes not imply that the results of such an exchange are socially optimal, just as the fact that individualsfreely decide to commute by car in Los Angeles does not mean that the resulting level of smog is socially optimal. The irony is that this alternativeview of the problems of the modern family seems much more in harmonywith Coleman'smethodological approachthan his own explanationis. Indeed, by suggesting that the plight of the modern family is simply an aggregation of purposefulindividualdecisionsbased on diminished expectations of getting future benefits from children, Coleman is guilty of one of the very sins he attributesto other sociologists.And in the process, he plays directly into the hands of critics of the rationalchoice approach. Our view of what causes the plight of the modern family has obvious significancefor social policy. Coleman's policy orientation is clearly colored by his view that the problem stems from a deficiency of parentalconcern for children. For example, he asks, "Shouldsocial policy attempt to recreate the conditionswhich reinforce parents' natural interest in and responsibility for their own children or attempt to create conditions which will induce agents of the state to take a long-termpersonalinterest in and responsibilityfor children who fall into their hands?"(p. 608). If the problem stems not from a lack of parentalinterest in children but from externalities with respect to social position, neither of the alternatives suggested by Coleman is an attractivepolicy. On the contrary, the most direct solution is to deal with the externality, and there are a variety of simple policies that could be employed towardthat end. For example, the state could take greatersteps to equalize educational resourcesacrosspublic school districts. It could

The difficultywith this line of thought is the same as with Galbraith'srevised sequence. It completely ignoresthe role of laborand product marketcompetition in the shaping of corporate behavior. If people are unhappy about their enslavement by existing firms, what prevents new firmsfromofferingmore attractiveworking conditions? If workers are willing to accept wage reductions sufficient to cover the cost of making conditions more attractive, then such conditions will quickly become the norm. If not, then the improved conditions simply are not worth their cost. In the hot, humid conditions of the South, for example, most manufacturing firms are air conditioned, because this is an amenity that costs less than workers are
willing to pay for it. By contrast, in many parts of Canada, workers assign little value to air conditioning, with the result that few manufactur-

Frank: Review of James Coleman's Foundations of Social Theory


ing firms offer it. Similarly, while producers surely do use advertising and other means to persuadeconsumersto buy their products, this does not imply that producershave the power to dictate society's menu of goods and services. Even an extraordinarily slick and costly advertising blitz, for example, could not persuade many people to buy Jazz, the Lotus Corporation's spreadsheet software for the Apple Macintosh.Microsoft's Excel, by most accounts a superiorsubstitute, quicklycapturedthe market despite its very modest promotional budget. Nationaladvertisingcampaignsare both costly and risky, and even the most powerful corporate actors have strong incentives to launch them for only those products they believe are most likely to win consumer approval. Here too the irony is that Coleman need not have invoked power asymmetries to account for the phenomena he is trying to explain. As I have argued elsewhere (Frank 1985, ch. 9), manyof the so-calledabuses of corporatepower are more plausibly interpreted as the result of prisoner'sdilemmas involving competition between individuals for relative economic position. Coleman's model of the formation of social capital has implications for the future course of social change. From the standpointof social efficiency, Coleman argues, the general problem with social capitalis that its returns, unlike those from physical and human capital investments, are largely external. Thus, for example, -a family deciding whether to move to a new city may not take full account of the effect of their departure on the value of existing social networks.2' Coleman argues that because it is not in an individual'sbenefit to invest in social capital,socialcapitalgenerallycomes into being as an incidental by-productof other activities. And here his theory yields a predictionof enormous interest and importance:Affluence militates againstthe formationand maintenanceof
21Colemanmighthave noted that similarproblems exist for human and physical capital. By becoming more educated, for example, a person benefits not only herself but also others with whom she works and socializes. And many physical investments, like those in R&D, also generatesubstantial externalbenefits. But it seems fair to say that the problem of external returns is more significant for social than for either human or physical capital.

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social capital because it leads people to purchase in the market many of the services they used to obtain or perform informallythrough social networks. Thus the mere fact that the income elasticity of demand for many services exceeds unity may have unintended, yet profoundly important,consequences for the evolution of social structure. The Mathematics of Social Action In terms of its total page count, Coleman devotes the final third of Foundations to the formalization of many of the theories he sketches verballyin the precedingchapters. My overall reaction to this separationof discursive and analyticalmodes is that it is an enormously positive step, one that economists would do well to emulate.22One advantageis that it widens the audience to include those who lack trainingin formalanalysis. But even for people who are well trained in analyticalmethods, the effort to master an idiosyncraticnew collection of notation and then wade through a mass of technical details has high opportunity cost. Coleman'spresentation, which provides an informative summary of the issues in the verbal mode, allows readers to invest that effort in a much more informed and selective way. The structure of many of Coleman's formal models is borroweddirectlyfromeconomic theory. The core presentation is a straightforward general equilibrium model in which people start with exogenously determined interests and endowments. Interests take the specific functional form of the Cobb-Douglas utility function, a restrictionthat Colemanjustifies in the name of computationalnecessity: The fixingof a specificformfor the utility function representsa compromisedifferent fromthe one thathasbeenmadein economics. Economists generally have sacrificed ability the to characterize general the for equilibrium systems of manygoodsin orderto proveresults thatassumed restrictions the utilityfuncno on tion beyondthe signson the firstand second derivatives. The theoryof this book requires calculation the general of for equilibrium more thantwo goods. . . andmorethantwo types of actors.In orderto do this I am sacrificing
22 At least one economist, AmartyaSen, 1970, has also employed this approachto great advantage.

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This theoreticaldevice would be of no value, however, if the theorist were merely using it as a way of savingthe theory. The first question is this: what does identificationdo for the person who identifies with another so as to lead him to do it? The second is this: What are the constraints which limit the process? Without any constraint,every action could be explained trivially,merely by positing a degree and direction of identificationwhich would lead to that action. (p. 518) These are just the right questions, but Coleman has little to offer in the way of answers. He suggests that if a person by his own action can bring benefit to another, one way for the first individual to take advantage of that fact is to identify with the second individual, thereby to experience the pleasure brought about by the benefit. Yet Coleman is aware that this line of argument raises troubling questions. If one can obtain one's pleasure by identifying with others, why not just identify with star athletes, princes, or the occupants of other enviable positions and dispense with costly action that benefits others? Coleman answers that the inevitable intrusions of reality prevent people from living in such a dream world, but he acknowledges that this isn't really an adequate response. Perhaps a more promising approach would be to look for ways that people might benefit in material terms by identifying with another's interests. One example, mentioned earlier, is that a principal should be willing to pay a higher salary to an agent who has identified with the principal's interests. After all, the principal can economize on monitoring costs by hiring such an agent. More generally, we can try to explain a person's interests in an evolutionary framework, asking what set of interests are most compatible with the individual's survival. Coleman takes this very tack in trying to explain a critical change of management orientation that took place in the Ford Motor Company in 1930. Prior to the mid-1920s, Ford had prospered by focusing its attention on the details of the manufacturing process. But from that time forward, it came under increasing pressure from General Motors, a company that focused on design, engineering, and styling. Ford ultimately underwent an internal reconstitution whereby corporate power fell into the hands of engineers and design specialists, and this

results beyond the Cobb-Douglasutility function. (p. 675) As a way to get the formal research effort under way, this seems perfectly sensible. But future researchers will want to bear in mind that one particular restriction implied by the Cobb-Douglas form has potentially serious consequences for many social behaviors of great interest. The problem is that the Cobb-Douglas form constrains the income elasticity of demand for every good to be exactly unity. Yet as Coleman himself notes earlier in his book, many important trends in the evolution of social structure are the result, in part, of the fact that the income elasticities of demand for several key service categories are substantially larger than unity. Researchers whose focus is on such issues will be pleased to know that techniques now exist for computing multiactor, multigood, general equilibrium models without having to assume the Cobb-Douglas utility function.

The Self
There is, as noted earlier, a long history of hostility within sociology of the proposition that people act rationally in pursuit of their own interests. Coleman is sensitive to this hostility and does not insist that narrow rationality provides an accurate characterization of all human behavior. Indeed, he even proposes a broader version of the rational choice model, one based on a two-part model of the self-the self as object and the self as agent. The self as object is the storehouse of the person's values and experiences. The self as agent acts on behalf of the object self's interests, and in the relationship between the two a similar set of principalagent problems arises as in the standard twoperson examples. As Coleman puts it: The general nature of this conception is that the object self, in whose interests the agent acts, is ever changingand throughoutmuch of life expanding.This conceptionmakesunnecessary any deviation from the conception of a rational purposive actor on which the theory of this book is based. Acts of apparent altruism, acts which derive fromsentimentalattachments and appear to be against the actor'sself-interests narrowlydefined, are explicable through such an addition to the theory, the use of an expandednotion of the object self.

Frank: Review of James Coleman's Foundations of Social Theory


change, Coleman argues, saved Ford from failure. For natural persons too, tastes are an important tool for survival. As the psychologist Jerome Kagan (1984) notes, the individual values emphasized in different societies are related in an intelligible way to material conditions in those societies. Thus, for example, a society constantly threatened by war tends to emphasize physical courage; one with high infant and child mortality tends to celebrate emotional detachment; and so on. Indeed, it is only by taking such an instrumental view of tastes that rational choice theorists can escape from the charge that they are simply dreaming up tastes to explain each new situation.

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On Moral Relativism
In a work much of whose focus is on how people deal with externalities, it is inevitable that Coleman confronts a host of questions in the domain of moral philosophy. Rather than shy away from these questions, Coleman tackles them head on. Much of what he says is provocative, and one needn't agree with all of it to admire his effort to move these issues forward. Coleman speaks at length about the distribution of individual rights within organizations and societies, and his aim for the most part is to construct a positive theory of how such rights are assigned. His answer is simple and straightforward: rights are assigned on the basis of a power-weighted consensus. No right exists unless it is the consensus of the group that it exist. In the light of this positive theory of how rights are allocated, what can be said about how rights ought to be allocated? Coleman responds: The implicationof this theory is that the question is unanswerablein general; it can be answered only in the contextof a particular system of action, and there the answeris that the existing distributionof rights is right. To go beyond this implies a vantagepoint outside the system under consideration,and the theory is explicit that there is no such vantage point. What is right is defined within the system itself, by the actors'interests and relative power in that system. The theory implies that moral philosophers searching for the right distribution of rights are searching for the pot of gold at the end of the rainbow. (p. 53)

Now, this is a controversial statement. It implies, for example, that torturing children is right if a power-weighted consensus of the current members of a society approves of it. Under a political dictatorship, a power-weighted consensus corresponds uniquely to the momentby-moment preferences of the dictator, and this too hardly seems to constitute grounds for moral approval. Coleman's perspective also appears to ignore the moral arguments that temper the exercise of power in existing societies. For example, many countries could deny welfare benefits to guest workers, yet don't. It would appear inconsistent with Coleman's use of the term "power" throughout the book for him to say here that guest workers get these benefits because of their power to summon our sympathy. Yet Coleman suggests something of just this sort when he notes that because choices are often tempered by each person's concern about the well being of others, the power-weighted social consensus may be less morally objectionable than it appears: Suppose, for simplicityof exposition, that there are only two relevant positions with respect to a certain policy: the position of being a man and the position of being a woman. If the policy is to be evaluated directly and each person has an equal voice in the evaluation, the outcome will depend on whether men or women are in the numericalmajority.If, however, each man and womanplaces himselfor herself in the position of others in the system, then each will take into account not only the numbers of men and numbers of women affected by the policy, but also the strength of the effect. Each will weigh the interests of those benefited against the interests of those harmedby the policy, and each will arrive at the same overall evaluation. The issue will be resolved by consensus, since all will see the policy in the same way-having internalized the interests of all others in the system. Self-interests will count for no more than the interests of any other. Each will speak in the name of the whole. (p. 385) Coleman views the above as an idealization not achieved even in small groups, the climate most favorable. But he argues that if social issues are resolved in this way, "the decisionmaking process will give a socially efficient outcome in a way that is precisely analogous to the market for externalities envisioned by

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slaves may be deficient under current social arrangements(perhapsbecause slaves are physically isolated, making their plight less visible to others). Observers from both external and internal vantage points might also be able to imagine alternative social arrangementsunder which sympathy for slaves might be substantially increased. Both types of observers might even agree that it would be morally desirable to make such changes. Yet self-control problems and other sources of social inertia might stand in the way of change. Alternatively, external observers might perceive that current institutions lead to a morally deficient outcome in ways that are not immediately apparentto internalobservers. For example, new information, or merely further reflection, might eventually persuade white supportersof apartheidin South Africathat the external critics of apartheid had been correct all along. Yet Coleman's perspective seems to rule out even this familiarform of moral discourse. It requires the newly converted opponents of apartheidto say, against their wishes, that apartheid used to be morally correct just because they and sufficientlymany others used to be in favor of it. By equating social efficiency with moraljustice, Coleman takes a very different position fromthe one taken by most welfare economists, who claim only that free exchange yields the best attainableresult subject to the initial distribution of endowments. Economists make no moral claims on behalf of the initial allocation. On the contrary, many economists stand sideby-side with Rawls and other moral philosophers who argue strongly against initial allocations on moral grounds.

Coase (1960) as a means by which a socially efficient outcome is achieved"(p. 386). From the foregoing passage, Coleman appears to regard social efficiency and moraljustice as one and the same. But even if we grant his ideal case of thoughtful internal deliberators, each concerned about the interests of others, on what grounds could we suppose that the initial distribution of power among them would lead to morallyjust outcomes? Suppose, for example, that men have three times the power of women, and would be willing to spend 10 percent of their power to get their way on a particularissue, whereas women would be willing to spend 20 percent of their power to prevail. In a Coaseian world, the men would prevail, since their total willingness to pay is higher. If necessary, they would compensate the women for the right to act. Yet if power had been distributed equally, the outcome would have been the reverse. In the absence of a compelling moraldefense of the initial unequal distributionof power, the outcome that would emerge under an equal distribution of power has a prima facie claim to greater fairness.23

What attitudes towardthe initial distribution of power are Coleman's internal deliberators assumed to take? He doesn't say, but presumably he means for them to accept the initial distributionas given. Yet the core of the injustice in many situations stems from precisely the unequal distribution of power. Coleman concedes that people outside the system could judge the initial distribution of power wrong, and that would make the resulting allocations "morallywrong from the perspective of the external system. . . . There is no absolute observation point, outside any social system, from which moraljudgment may be made" (p. 387). Coleman's position thus seems to commit him, for example, to the judgment that there is no meaningfulway for an observer outside a social system to conclude that the institution of slavery is immoral. This too is an extreme position. After all, external observers can be guided by the same insights and moral sentiments as can internal observers. Both types of observers might recognize that sympathy for
23 See John Rawls, 1971, for arguments in support of this claim.

Corporate Responsibility
In an extended discussion of corporate responsibility, Coleman goes over the familiar economic arguments about why competitive pressures militate against corporate charitable acts. He regards such actions as being socially desirable, however, and goes on to advocate the use of tax policy as a means of inducing corporationsto engage in them. This discussionraisesthe question of whether corporationsare as constrained from pursuing sociallyresponsible actionsas conventionaleco-

Frank: Review of James Coleman's Foundations of Social Theory


nomic models suggest. Consider, for example, the Star-KistTuna Company, which recently implemented a policy of not buying tuna from supplierswho use gill nets (which kill not only tuna but also dolphins and other marine mammals). Conventional economic models predict that this policy should lead to Star Kist's demise, because free-ridingconsumers should be unwillingto bear the higher prices necessitated by the costlier methods of catching tuna. In the event, however, the Star Kist policy was a resounding commercial success. The company informedconsumersof the reasonfor its higher prices, and sales not only did not fall, they actually rose substantially,and along with them the company'sprofits. So it is clear that in at least some instances, customers are willing to incur voluntarilythe higher costs associatedwith socially responsible corporatepolicies. Anotherpossible means whereby socially responsible corporateaction is sustainableunder competition is throughthe effect of such action on the reservationwages of employees. To the extent that people have personal values that favorresponsible corporateaction, they should be willing to accept lower wages from employers who act responsibly. In a recent study (Frank1991), I have found that people are willing to accept significantlysmaller salaries for jobs in companieswhose mission they approve of than for otherwise similarjobs in companies whose missionsthey do not favor. For example, the median respondent in a sample of Cornell University seniors would have to be paid more than $15,000/yr extra to be willing to work as an ad copywriterfor Camel Cigarettes than to work as an ad copywriterfor the United Way. Here too, conventional economic models predict that employees will free ride by accepting the most remunerative jobs, but experience does not support this prediction. Yet anotherpossible means whereby socially responsible corporate behavior might be sustainablein the marketplaceis throughthe effect of the corporation'sbehavior on the behavior of its employees. One way that corporations try to solve principal-agentproblems is by the use of corporateculture-by trying to instill a sense of professionalism loyalty among emand ployees. A corporationthat behaves opportunistically-in terms of, say, its environmental policies-may have much greater difficulty

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instilling such values than would a competitor who acts in a more socially responsible way. In each of the three mechanisms discussed above, a rationalchoice model thatfailsto incorporate moral sentiments yields substantially misleading predictions. Of course, that there are means by which corporationsmight remain ,profitabledespite acting in a socially responsible way does not mean that these means are sufficient to assure socially optimal corporate conduct. There may, as Coleman believes, remain ample room for the law and corporate tax policy to take further steps to bring corporate and social interests into balance. Concluding Remarks Leading sociologists have been sharplycritical of Coleman'sanalysisfor being too oriented to rationalchoice, too much based on methodological individualism.24Some economists will wish to ignore his work for almost the opposite reason, laden as it is with such group-oriented
concepts as norms, social capital, networks, feedback loops, and the like. Both disciplines, however, will overlook Coleman's contribution only at their own peril. He is by no means the first sociologist to stress the importance of interdependencies in human behavior. But he is the first to have given economists a systematic and methodologically compatible way of incorporating such issues into traditional economic models. And he has also shown how sociologists can move toward a more precise, predictive science of human behavior. Foundations of Social Theory is indeed a fitting capstone to the career of one of this century's most distinguished and creative sociologists.
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