Explaining institutions: A defence of reductionism

New institutionalism is an approach to the study of social events that is becoming increasingly popular. Different lines of new institutional research can be distinguished. In one line of research it is argued that the social sciences should transcend reductionist modes of explanation, in particular the methodological individualism exemplified by the theory of rational choice. In this view, reductionism does not permit the endogenous treatment of institutions and thus cannot account for important aspects of the social and political context in which agents act. In this paper the meaning of the terms ‘methodological individualism’ and ‘reductionism’ is discussed and illustrated by a description of some of the central assumptions of rational choice theory, in particular game theory. It is argued that the claim that reductionism should be transcended is unwarranted: reductionism is perfectly compatible with the new institutional concerns. First of all, the various institutional dimensions that have been distinguished in the new institutional literature can be systematically described in terms of a game-theoretic model. Furthermore, the dynamic models of game theory can be (and often already have been) used to explain the emergence of institutions