Economic Action and Social Structure: The Problem of Embeddedness

This chapter discusses the embeddedness of economic behavior. It has long been the majority view among sociologists, anthropologists, political scientists, and historians that such behavior was heavily embedded in social relations in premarket societies but became much more autonomous with modernization. The chapter explores that most behavior is closely embedded in networks of interpersonal relations and that such an argument avoids the extremes of under- and oversocialized views of human action. Classical and neoclassical economics operates, in contrast, with an atomized, under socialized conception of human action, continuing in the utilitarian tradition. Since about 1970, there has been a flurry of interest among economists in the previously neglected issues of trust and malfeasance. The language problem is particularly severe where the judgments to be made are highly subjective. Oliver Williamson asked under what circumstances economic functions are performed within the boundaries of hierarchical firms rather than by market processes that cross the boundaries.