Institutional Economics and Social Dilemmas: a Systems Theory Perspective

Abstract

The present paper explains why social dilemmas are endemic to the regime of functional differentiation theorized by Niklas Luhmann. It is argued that within this regime, social systems combine two systems‐theoretic identities elaborated by the theories of Luhmann and Bertalanffy. Social systems are operationally closed and thus limitedly sensitive to the environment; at the same time, they are metabolically dependent on it. Social dilemmas are shown to originate from the conflict between these two identities, a conflict that occurs when social systems disregard their critical environmental dependence. An implication of the argument is that economic incentives present the individual‐level projections of systemic imperatives arising from the operational closure of the functional system of the economy. This implication informs the institutional economics analysis of social dilemmas by explaining these in terms of the excessive intensity of economic incentives that makes economic actors insensitive to their critical dependence on their environment. Copyright © 2014 John Wiley & Sons, Ltd.

The Rawlsian Critique of Utilitarianism: A Luhmannian Interpretation

“…In fact, there are no guarantees that some of these side effects will not adversely affect the relevant metabolic connection of the system to its environment. This is why Luhmann (1999, p. 199, own translation) argued that ''a (goal-rational) system makes itself free from the innumerable aspects of its environment; it sets boundaries and sets autonomy, but also exposes itself to the danger of ignoring those facts and changes of the environment that are crucial for its continued existence'' (Valentinov & Chatalova 2014b).…”

From Complexity Reduction to Moral Character: A Deweyian Reading of Luhmann's Social Systems Theory

“…If systems reduce complexity, they accept side effects that constitute part of the world complexity being reduced or externalized (cf. Valentinov & Chatalova, ; Piggot‐Irvine et al, ). The emerging moral problem is that these side effects are not necessarily known to anyone in their entirety.…”

Emergent Social Dilemmas in Modern Society: An Institutional Economics Perspective (A comment on Valentinov and Chatalova)

“…The authors highlight that the functional differentiation of modern societies results in autopoietic systems (e.g. the economy, politics, science), whose complexity and functionality depends on a ‘systemic insensitivity towards the environment’ Valentinov and Chatalova (, 140). Building on Bertalanffy (, 141–143), the authors draw attention to a supplementing notion that social systems are metabolically open because their sheer existence as ‘organized complexity’ requires an open exchange relationship with their environment.…”

“…While ‘desirable dilemmas are created by … incentive structures that do not lead actors to disregard their critical environmental dependence’, dilemmas are undesirable ‘by virtue of actors' disregard of their critical dependence on the environment’ (Bertalanffy, , 142). And because undesirable dilemma structures are seen to originate from incentives being too strong, Valentinov and Chatalova's (, 142) systems‐theoretical management of dilemma situations intends to weaken incentives: ‘[S]ocial dilemma situations can be, in the last analysis, traced back to incentives being too strong relative to a particular environment. Accordingly, correcting social dilemmas calls for the weakening of incentives’. (2) This comment is inspired by the great potential of interdisciplinary learning between systems theory and institutional economics, which is currently under way in several academic debates (cf., e.g.…”

“…Yet both theory perspectives use diverse theoretical notions and models to explain the same phenomenon, with each resulting explanation reflecting a different explanatory capacity. •A systems‐theoretical perspective as put forward by Valentinov and Chatalova () stresses the double identity of operationally closed and metabolically open social systems. In contrast, institutional economics highlights competition as the pivotal feature of openness in the two most important social systems: the economy and politics. •The emphasis on the relationship between systems and their environments seems to guide the systems‐theoretical view that social dilemmas are created by incentive structures that lead actors to disregard their critical environmental dependence.…”