(P1-05) Institutions: mixing the natural and the rational

‘Institutions’ matter. Many definitions do circulate. Ours is discussed below (and largely harvested from Schmidt 2009).

Institutions have:

  1. identity
  2. claimed sovereignty
  3. over a domain
  4. shared beliefs
  5. function
  6. rules (or laws)
  7. policies
  8. norms
  9. elites
  10. work forces
  11. publics
  12. feedback and communication channels
  13. hierarchically organized, internal and external, institutional structure.

‘Institution’ is a family concept; it is hard to define, because institutions differ in many significant ways. Nevertheless we contend that it makes sense to consider anything showing the thirteen mentioned characteristics to be an institution. Thus, we consider e.g. the following kaleidoscopic collection of social systems to be institutions: the Dutch health care system, nation states, soccer world championships, families, parishes, pop groups, the UN, the EU, Mogadishu factions, firms, Super Bowls, schools, the Camorra, markets, games and most Internet-mediated services (Google, open source projects, Freenet, Wikipedia, Hyves, YouTube, Sec- ond Life, etc.), even Internet itself (with its IETF). Quite often, institutions are complex adaptive networked systems.

From a law-science perspective, the most striking characteristic of an institution is its having rules. That is why we sometimes call institutions ‘legal systems’ (when referring to nation states or treaty organizations) or ‘law systems’ (as synonymous to institutions in general, in the vein of Fuller 1969:124-9). So legal systems are institutions (are law systems), and function to provide valuable structure to group life.

For our purposes, however, an important issue in characterizing law systems this way is in the almost universal de facto concurrency of the whole set of characteristics – and in the hypothesis it suggests that institutions have natural structure, that laws (man-promulgated general rules) naturally come with institutional identity, sovereignty, domains, beliefs, function, policies, norms, elites, work forces, publics etc. Apparently, organization per se nurses these characteristics towards law systemhood.

Analytically, we crash into the reciprocal structure of etiologic, functional, teleological stories here. In biology, it may be used for the explanation of the long neck of the giraffe, founded on the value-free mechanism called ‘survival of the fittest:’ out of the set of random adaptations the instance that proves to be most fit to survive survives. An analogous functional process may be at work for the etiology of institutions.

Many do loathe this idea. Coase (1937) took a very long time (roughly: from 1937 until the 1990s) to gain the respect of mainstream economists. Making a long story short, we consider Coase’s analysis (generalizing it for our purposes here) to unveil a ‘survival of the better value’ mechanism, for organizing  exchanges in general: the transaction costs of making rational ad hoc behavioral choices (information gathering, per exchange, on availability, quality, price, ownership, trustworthiness, future consequences,  etc.) may outgrow the benefits of deciding autonomously and individually. We thus can apply Coase’s insight not only on economic exchanges, but also on behavioral decision making in general and show that there are situations in which the values gained by organization can balance the values lost by waiving individual freedom of choice (or autonomy). [As a matter of fact, we suspect that this mechanism may well be at work when levels of aggregation in communities (complex adaptive networked systems populated by responsible people) emerge].


One major distinction between the ‘natural’ mechanisms of survival of the fittest and survival of the better value must be stressed: the latter is not founded on random mutation processes alone, but also on human capabilities for rational intervention, design and judgment under conditions of incomplete information. Survival of the better value is thus to be understood as a natural-rational mixed bag, perhaps not unlike the mechanisms involved in a living language adapting with its time.


The concept of law-system quality introduces incredibly complicated insitutional questions amongst which the first and foremost are whether we can (1) identify ‘natural’ values that (2) are commensurable and (3) can be exchanged. Researching, let alone answering these questions is beyond the scope of the current discussion.


Coase, R. H. 1937. The nature of the firm. Economica, 4 (16), 386–405.

Fuller, L.L. 1969, The Morality of Law, Yale University Press.

Schmidt, A.H.J. 2009. Radbruch in Cyberspace: About Law-System Quality and ICT Innovation. Masaryk UJL & Tech., 3, 195.

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2 thoughts on “(P1-05) Institutions: mixing the natural and the rational

  1. Dank voor de tip van die boekenwebsite! Erg handig.
    Groet, Michiel

  2. Tina van der Linden says:

    It’s working! I’ll study this thing about institutions carefully, and if I had anything to contribute, I know now where I can leave my comments. Happy holidays!