Culture, Rationality and Economic Institutions in East Asia: The Chinese Family Firm

Explanation of economic interactions within East Asia has long been split between those who view action as an outcome of rational decision-making by an autonomous state and those who view it as a result of cultural patterns ingrained in Confucianism and other elements of traditional culture. This paper shows how these two approaches can used in a complementary rather than conflicting manner to explain the origins of the Chinese family firm. It does so by examining ways in which cultural norms can provide points of convergence for rational actors in situations of strategic uncertainty which would otherwise induce multiple equilibria. Cultural norms will be particularly important at those points in history when new institutions are being formed, and can lead to distinct institutional forms. Once created, however, the institutions themselves can structure incentives in a way that leads to self-perpetuation. Social science analysis of economic and political phenomena within the East Asia, and particularly among predominately-speaking Chinese societies of the “Greater China”, is divided into two competing and largely self-contained bodies of theory. The first, drawing from broad traditions of political economy analysis and