WPC, Gmz%Oc|4%w@;b7/r咵5e qxV cT[Ww8mX~ A켢kv*R*[EBCK<6xs`a 7-@OVo< -.N=ڪjI.A}E0 qb+! /x-hqXxR fD& *uzI1B`/ἃHFCz2Y z>yLS6={ZM8%‡LJSbIR/PfvWvND&*e%ǯQ|W%uBfj~/5O:Y/A;WB|s2ݾ~]6u~htx4|Mcw;MZzסqB`'y#gto+/R^oa9# d0QyTl#h5UN18 %8 08^ :w:4#:7:F: mH:~_: 0N<8+= 07c> 07D5@ 0jy@@oADIIJjK0L-L#MQUZc[c]]=v^cvds i 0o 0mp 0Xq 0@r 0%s 0t 0t 0u 0v 0qw 0Mx 0&y 0y 0z 0{ 0l| 06} 0} 0~ 0 0t 0I 0 0 0 0 0E19 0U@W .8BU>Qw=RyUNQ د)a B# TG 0; 0@opux@9ro Or 0#pH>́ D- 0KB> Avb 0FN 0 0D" 0 0, 0  0 0k 0 0 0x 0I 0 0 0P 0 0 0! 0 0p 0> 0 0 0< 0 0r 0 A9999999999999999999999[bbJabba the Hutt0(9 Z6Times New Roman RegularX(f1f$UKUS.,TRW<6&A4X3' Letter 6&A43'Tz, o, k1$3|x)Uinstitutional evolution and trust.wpd    ' Henry0Henry .   (O$ . 2$UKUS.,    6    _Ԁ JackKnight,"TheBasesofCooperation:SocialNormsandtheRuleofLaw,"  JournalofInstitutionalandTheoreticalEconomics154,no.4(1998):75463.((32$ 1f!UKUS.,TRW6&A4X3' Letter 6&A43'LetterT      0  (#$  0  j6[Citation]ProCite - Intext Citation 2$UKUS.,    11    _ԀRussell_Hardin_, TrustandTrustworthiness. e 2$UKUS.,    3    _ԀSomeauthorshavealsoexpresseddoubtaboutPutnamsstatisticalmethodology;see  e.g.,_Tarrow_, MakingSocialScienceWork; USUK.,JXXXXRobertW.Jackman,andRossAMiller,"A  RenaissanceofPoliticalCulture?,"AmericanJournalofPoliticalScienceVol.40,no.3  (1996a):63259#XXXJXJ#UK.,US.,8.  2$UKUS.,    12    _ԀSee JXXXX#XXXJX#Wolfgang_Streeck_,"ProductionConstraints:OntheInstitutionalConditionsof  DiversifiedQualityProduction,"inWolfgang_Streeck_,SocialInstitutionsandEconomic  Performance:StudiesofIndustrialRelationsinAdvancedCapitalistEconomies(London:  SAGE,1992),141;andalso_Alessandro_Ԁ_Arrighetti_,Reinhard_Bachmann_,andSimonDeakin, t "ContractLaw,SocialNormsandInterFirmCooperation,"CambridgeJournalofEconomics ` 21(1997),189,JXXXX thestabilityoftheunderlyingrelationships,andtheexpectationthat L  potentialcontractingpartnerswillrespectgeneralnormscreatesubstantialscopeforflexibility 8  beyondcontractintheformofadhocunderstandings,giveandtakeetc.#XXXJX#ԁLevel 1Level 2Level 3Level 4Level 5Level 1Level 2Level 3Level 4Level 5Level 1Level 2Level 3Level 4Level 5Level 1Level 2Level 3Level 4Level 5Level 1Level 2Level 3Level 4Level 5 ##CXd#  2$UKUS.,    4    _Ԁ  OliverE.Williamson.TheEconomicInstitutionsofCapitalism:Firms,Markets,  RelationalContracting(NewYork:TheFreePress,1985)f  ~(Williamson 1985a)_Williamson 1985 #3355>C:\Program Files\ProCite5\Database\Local Economies Book II.pdt;DouglassC.North,"Institutions  andaTransactionCostTheoryofExchange,"inJamesE.Alt,andKennethA._Shepsle_,eds.,   PerspectivesonPositivePoliticalEconomy(Cambridge:CambridgeUniversityPress,  _1990a_);DouglassC.NorthInstitutions,InstitutionalChangeandEconomicPerformance  (Cambridge:CambridgeUniversityPress,1990).  2$UKUS.,    5    _Ԁ Andrew_Schotter_.TheEconomicTheoryofSocialInstitutions(Cambridge:  CambridgeUniversityPress,1981);RandallL._Calvert_,"RationalActors,Equilibrium,and  SocialInstitutions,"inJackKnight,and_Itai_Ԁ_Sened_,eds.,ExplainingSocialInstitutions(Ann  Arbor:UniversityofMichiganPress,_1995b_);RandallL._Calvert_,andJames t Johnson,"InterpretationandCoordinationinConstitutionalPolitics,"in_Ewa_Ԁ_Hauser_,and ` _Jacek_Ԁ_Wasilewski_,eds.,LessonsinDemocracy(Rochester,NY:UniversityofRochester L  Press,1999);JackKnight.InstitutionsandSocialConflict(Cambridge:Cambridge 8  UniversityPress,1992).  2$UKUS.,    8    _ԀHenryFarrell,TrustandPoliticalEconomy:InstitutionsandtheSourcesofInter  FirmCooperation.PresentedatInternationalSocietyoftheNewInstitutionalEconomics  AnnualMeeting,September1315,2001;HenryFarrell, Trust,DistrustandPowerinInter  FirmRelations,inRussell_ Hardin_ Ԁed.,Distrust(NewYork:RussellSageFoundation,under t submission);JackKnight, InstitutionsandSocialConflict; JackKnight,"Models, ` InterpretationsandTheories:ConstructingExplanationsofInstitutionalEmergenceand L  Change,"inJackKnight,and_ Itai_ Ԁ_ Sened_ ,eds.,ExplainingSocialInstitutions(AnnArbor: 8  UniversityofMichiganPress,1995);JackKnight,"SocialNormsandtheRuleofLaw: $ t FosteringTrustinaSociallyDiverseSociety,"inKarenCook,TrustinSociety(NewYork:  ` RussellSage,2000),35473. 2$UKUS.,    7    _ԀMargaretLevi, AStateofTrust;Russell_Hardin_, TrustandTrustworthiness. Y 2$UKUS.,    9    _Ԁ  RobertD.Putnam, MakingDemocracyWork,159f  v(Putnam 1993b)4Putnam 1993 #5525>C:\Program Files\ProCite5\Database\Local Economies Book II.pdt. Y 2$UKUS.,    10    _Ԁ  RobertD.Putnam, MakingDemocracyWork,161g  v(Putnam 1993b)4Putnam 1993 #5525>C:\Program Files\ProCite5\Database\Local Economies Book II.pdt. 3 2$UKUS.,    15    _ԀWenotethatcompliancewiththeinstitutionsinagivencommunitymaysometimes  giverisetountrustworthy_ behavior_ ,andthustogeneralizeddistrustratherthantotrust.This  maybetrueofSouthernItaly,bothhistoricallyandinthepresent;seee.g. USUK.,JXXXXAnthony  _ Pagden_ ,"TheDestructionofTrustandItsEconomicConsequencesintheCaseofEighteenth t CenturyNaples,"inDiego_ Gambetta_ ,ed.,Trust:MakingandBreakingCooperativeRelations ` (Oxford:BasilBlackwell,1988);UK.,US.,#XXXJX#Diego_ Gambetta_ ,"Mafia:ThePriceofDistrust,"inDiego L  _ Gambetta_ ,ed.,Trust:MakingandBreakingCooperativeRelations(Oxford:BasilBlackwell, 8  1988).Thelogicofthismechanismispreciselyanalogouswiththatoftheonewhichwe $ t haveidentified,eveniftheeffectsarethereverse. 2$UKUS.,    13    _ԀRussell_Hardin_, TrustandTrustworthiness.  2$UKUS.,    37    _ԀAswenote,muchpreviousliteratureonindustrialdistrictshasbeenhostiletothe  rationalchoiceperspective.However,wesuggestthatthemorerecenttheoretical  developmentsthatweseektobuildonofferbothamore_ nuanced_ Ԁunderstandingofindustrial  districtsthansimple_ economistic_ Ԁexplanations,andagreaterpossibilityoffruitfuldialogue t withnonrationalchoiceapproaches.Indeed,thereismuchcommongroundbetweenour ` argumentsandtheargumentsofsociologistssuchas_ Arnaldo_ Ԁ_Bagnasco_Ԁ(1999) cites and L  Carlo_ Trigilia_ Ԁ(1999) cites whocriticizemuchworkinthepoliticalcultureandsocialcapital <  traditionforits_ oversocialized_ Ԁexplanationofhuman_ behavior_ . i 2$UKUS.,    16    _Ԁ USUK.,JXXXXPeterA.Hall,andRosemaryC.R.Taylor,"PoliticalScienceandtheThreeNew  _Institutionalisms_,"PoliticalStudies44(1996):93657;UK.,US.,}USUK.,#XXXJX#JXXXXRichard_ Swedberg_ ,andMark  _ Granovetter_ ,"Introduction,"inRichard_ Swedberg_ ,andMark_ Granovetter_ ,_ eds_ .,TheSociology  ofEconomicLife(Boulder,Colorado:_ Westview_ ԀPress,1992);JackKnight, Institutionsand t SocialConflict;UK.,US.,USUK.,#XXXJX#JXXXXJosephE._ Stiglitz_ ,"FormalandInformalInstitutions,"in_ Parta_ Ԁ_ Dasgupta_ , ` andIsmail_ Serageldin_ ,SocialCapital:AMultifacetedPerspective(WashingtonDC:The L  WorldBank,1999);UK.,US.,#XXXJX#PaulPierson,"TheLimitsofDesign:ExplainingInstitutionalOrigins 8  andChange,"Governance13,no.4(2000):47599.2G+J 0_level1  X /%4 4 <DL/23  ..  2( 4 <DL2  2D+J 0_level2   ," <DL,23  ..  2( 4 <DL2  2A+J 0_level3   ) <DL)23  ..  2( 4 <DL2  2>+J 0_level4  ` &<<DL&23  ..  2( 4 <DL2  2;+J 0_level5   #DL#23  ..  2( 4 <DL2  28+J 0_level6    DL 23  ..  2( 4 <DL2  25+J 0_level7  h DDL23  ..  2( 4 <DL2  22+J 0_level8   L23  ..  2( 4 <DL2  2/+J 0_level9    L23  ..  2( 4 <DL2  2GJ 0_levsl1  X /%4 4 <DL/23  Ԁ  2( 4 <DL2  2DJ 0_levsl2   ," <DL,23  Ԁ  2( 4 <DL2  2AJ 0_levsl3   ) <DL)23  Ԁ  2( 4 <DL2  2>J 0_levsl4  ` &<<DL&23  Ԁ  2( 4 <DL2  2;J 0_levsl5   #DL#23  Ԁ  2( 4 <DL2  28J 0_levsl6    DL 23  Ԁ  2( 4 <DL2  25J 0_levsl7  h DDL23  Ԁ  2( 4 <DL2  22J 0_levsl8   L23  Ԁ  2( 4 <DL2  2/J 0_levsl9    L23  Ԁ  2( 4 <DL2  2GJ 0_levnl1  X /%4 4 <DL/23   2( 4 <DL2  2DJ 0_levnl2   ," <DL,23   2( 4 <DL2  2AJ 0_levnl3   ) <DL)23   2( 4 <DL2  2>J 0_levnl4  ` &<<DL&23   2( 4 <DL2  2;J 0_levnl5   #DL#23   2( 4 <DL2  28J 0_levnl6    DL 23   2( 4 <DL2  25J 0_levnl7  h DDL23   2( 4 <DL2  22J 0_levnl8   L23   2( 4 <DL2  2/J 0_levnl9    L23   2( 4 <DL2   ' 2$UKUS.,    14    _ԀSeeJackKnight, InstitutionsandSocialConflict,Chapter3,foramoredeveloped  accountoftheeffectsofsocialinstitutionsonsocialexpectationsandbeliefs. 2$UKUS.,    17    _Ԁ GaryJ.Miller,"RationalChoiceandDysfunctionalInstitutions,"Governance13,  no.4(2000):53547.*+ (_2623  ..   M 2$UKUS.,    21    _*XX"(#XX*Ӏ  Miller(1992)  qg (Miller 1992) Miller 1992 #2191C:\Program Files\ProCite5\Database\biblio.dat.pdtq x 2$UKUS.,    22    _ԀAlthough localeconomiesarenowbeingfoundintheSouthandNorthEastof  thecountryaswell;see    Luigi_ Burroni_ ,andCarlo_ Trigilia_ ,"Italy:EconomicDevelopment   ThroughLocalEconomies,"inColinCrouch,ed.,LocalEconomiesinEurope:Riseor  Demise?(Oxford:OxfordUniversityPress,forthcoming).  2$UKUS.,    23    _Ԁ  g  OliverE.Williamson.MarketsandHierarchies:AnalysisandAntitrust  Implications(NewYork:FreePress,1975);OliverE.Williamson, TheEconomic  InstitutionsofCapitalism.  2$UKUS.,    24    _ԀCooperationbetweenfinalfirmsandsubcontractorsisdiscussedinmoredetailin  HenryFarrell, TrustandPoliticalEconomy.  2$UKUS.,    25    _ԀSeeforexample, USUK.,JXXXX_Arnaldo_Ԁ_Bagnasco_,"Introduction:AnUnexpectedand  ControversialReturn,"in_Arnaldo_Ԁ_Bagnasco_,andCharlesF._Sabel_,_eds_.,SmallandMedium  SizeEnterprises(London:Pinter,1995),115;UK.,US.,#XXXJX#Carlo_ Trigilia_ ,"Il_ Distretto_ Ԁ_ Industriale_ ԀDi  Prato,"inMarino_ Regini_ ,andCharlesF._ Sabel_ ,eds.,_ Strategie_ ԀDi_ Riaggiustamento_  t _ Industriale_ (Bologna:Il_ Mulino_ ,1989),283333;USUK.,JXXXXBennettHarrison,"IndustrialDistricts:Old ` WineinNewBottles?,"RegionalStudies26,no.5(1992):46983;UK.,US.,#XXXJX#CharlesF._ Sabel_ ,"Studied L  Trust:BuildingNewFormsofCooperationinaVolatileEconomy,"inRichard_ Swedberg_ , 8  ed.,ExplorationsinEconomicSociology(NewYork:RussellSageFoundation,1993). 8 2$UKUS.,    26    _Ԁ _Gabi_ԀDei_Ottati_,"Trust,InterlinkingTransactionsandCreditintheIndustrial  District,"CambridgeJournalofEconomics18(1994):52946;EdwardH.Lorenz,"Trust,  CommunityandCooperation:TowardaTheoryofIndustrialDistricts,"inMichael_Storper_,  andAllenJ.Scott,eds.,PathwaystoIndustrializationandRegionalDevelopment(London: t _Routledge_,1992a) si(Lorenz 1992a)WLorenz 1992a #1231C:\Program Files\ProCite5\Database\biblio.dat.pdts.\  `&Times New Roman  2$UKUS.,    1    _ԀSee,e.g., RobertD.Putnam,MakingDemocracyWork:CivicTraditionsinModern  Italy.(Princeton,NewJersey:PrincetonUniversityPress,1993);RobertD.Putnam,Bowling  Alone:TheCollapseandRevivalofAmericanCommunity(NewYork:Simon&Schuster,  2000);Francis_Fukuyama_,Trust:TheSocialVirtuesandtheCreationofProsperity(London: t HamishHamilton,1995);USUK.,JXXXXRussell_Hardin_.TrustandTrustworthiness(NewYork:Russell ` SageFoundation,forthcoming);UK.,US.,p#XXXJX#MargaretLevi,"AStateofTrust,"inValerie_Braithwaite_, L  andMargaretLevi,eds.,TrustandGovernance(NewYork:RussellSageFoundation,1998), 8  77101;JXXXXUSUK.,KarenCook,ed.TrustinSociety(NewYork:RussellSage,2000#XXXJX^#UK.,US.,}).  2$UKUS.,    27    _Ԁ MichaelTaylor.Community,AnarchyandLiberty(Cambridge:Cambridge  UniversityPress,1982);MichaelTaylorThePossibilityofCooperation(Cambridge:  CambridgeUniversityPress,1987).See_ Gabi_ ԀDei_ Ottati_ , Trust,InterlinkingTransactions  andCredit,forafruitfulextensionofTaylorslogictosubcontractingrelationshipswithin t industrialdistricts. m 2$UKUS.,    28    _Ԁ USUK.,JXXXX_Bengt_Ԁ_Holmstrm_,andJohnRoberts,"TheBoundariesoftheFirmRevisited,"  JournalofEconomicPerspectives12,no.3(1998):7394;UK.,US.,}#XXXJX#GaryJ.MillerManagerial  Dilemmas:ThePoliticalEconomyofHierarchy(Cambridge:CambridgeUniversityPress,  1992). H 2$UKUS.,    29    _Ԁ USUK.,JXXXX_Avner_Ԁ_Greif_,"CulturalBeliefsandtheOrganizationofSociety:AHistoricaland  TheoreticalReflectiononCollectivistandIndividualistSocieties,"JournalofPolitical  Economy102,no.5(1994):91250;UK.,US.,}#XXXJX#_ Michihiro_ Ԁ_ Kandori_ ,"SocialNormsandCommunity  Enforcement,"ReviewofEconomicStudies59(1992):6380;Randall_ Calvert_ , Rational t Actors. o 2$UKUS.,    30    _Ԁ Marco_Bellandi_,"ResearchBriefing:InnovationandChangeinthe_Marshallian_  IndustrialDistrict,"EuropeanPlanningStudies4,no.3(1996):35768.See  q  _Patrizio_Ԁ_Bianchi_,  "Un_Contesto_Ԁ_Produttivo_ԀNon_Nasce_ԀDal_Nulla_:_._Ԁ_Fatto_ԀDi_Conoscenze_,_Regole_Ԁ_Sociali_,  Culture,_Innovazioni_,_Finanziamenti_Ԁ...,"_Scuolaofficina_93,no.2(1993),forasimilar t formulation,and_Gabi_ԀDei_Ottati_, Trust,InterlinkingTransactionsandCredit,fora ` discussionoftheroleofcommunity normsinsecuringcooperation.  2$UKUS.,    31    _Ԁ _Sebastiano_Ԁ_Brusco_,"SmallFirmsandtheProvisionofRealServices,"inFrank  _Pyke_,andWalter_Sengenberger_,eds.,IndustrialDistrictsandLocalEconomicRegeneration  (Geneva:InternationalInstituteforLabourStudies,1992),182.(9 Z 6Times New Roman Regular 2$UKUS.,    34    _ԀTheseinstitutionsarediscussedatgreaterlengthinHenryFarrell, Trustand  PoliticalEconomy. G 2$UKUS.,    32    _Ԁ  JackKnight, InstitutionsandSocialConflict,54.g  ݀_Brusco_Ԁemphasizesthe  importanceoflocaltraditionincreatinganappropriatecontextformoderncooperation. Carlo  _Trigilia_,Grande_Partiti_Ԁe_Piccole_Ԁ_Imprese_:_Comunisti_Ԁe_Democristiani_Ԁ_Nelle_Ԁ_Regioni_Ԁa  _Economia_Ԁ_Diffusa_(Bologna:Il_Mulino_,1986),similarlystressestheimportanceoflocal sub t culturesinpavingthewayforindustrialdistricts.Culturalfactorsofthissortmayindeed ` playanimportantroleincreatingacontextwhereactorsrealizethatcertainformsof L  cooperationarepossibleandbeneficial.Symbolsandculturalbeliefsmaydiscloseor 8  foreclosepossibilitiesofactionwithinaspecificcommunity,andthusaffectactors_behavior_ $ t andtheinstitutionsthatarisefromtheseinteractions.Here,theirroleisanteriortothepower  ` relationshipsthatweemphasizeinouraccount;theymaypartiallydefinetherangeof  L   possibleequilibriaoverwhichactorsmaybargain.Forfurtherdevelopmentofthese  8  arguments,seethediscussioninUSUK.,JXXXXJean_ Ensminger_ ԀandJackKnight,"ChangingSocialNorms: $  CommonProperty,_ Bridewealth_ ,andClanExogamy,"CurrentAnthropology38,no.1:124,    andUK.,US.,L#XXXJX^#JamesJohnson,"SymbolandStrategyinComparativePoliticalAnalysis,"_ APSA_ ԄCP:  Newsletterofthe_ APSA_ ԀOrganizedSectioninComparativePolitics(1997).Wearegrateful  toCarlo_ Trigilia_ Ԁforremindingofusoftheimportanceofthesefactors.  2$UKUS.,    35    _ԀThealmostuntranslatableexpletive_beh_!hasbeentranslatedinthemostneutraland  generalformulationpossible.Otherequallyvalidtranslationsmightbe Somuchforhim!,  or Somuchforthat! W 2$UKUS.,    33    _ԀThefindingsreportedherearetheresultofinterviewscarriedoutbyAnnLouise  _ Lauridsen_ ԀandHenryFarrellinSpring/Summer1999inBologna.SeventeenfirmsinBologna  wereinterviewed,aswellastwentythreeactorswithknowledgeofthelocaleconomy.The  authorsaredeeplygratefultoAnnLouise_ Lauridsen_ Ԁforherindispensablepartingathering t thisdata,andforsubsequentdiscussionsrelevanttothethemesofthispaper.Ulrich ` _ Glassmann_ Ԁalsoparticipatedinseveraloftheinterviewsandplayedanimportantrole.These L  interviewswerecarriedoutinthecontextofafourcountryprojectonthe Governanceof 8  LocalEconomies,directedbyColinCrouch,PatrickLe_ Gals_ ,Carlo_ Trigilia_ ԀandHelmut $ t _ Voelzkow_ .Wewishtoacknowledgeourgratitudetothesescholars,aswellastoothers  ` involvedintheproject,mostespeciallyLuigi_ Burroni_ . 2$UKUS.,    36    _ԀSeeHenryFarrell, TrustandPoliticalEconomy,foramoredetaileddiscussion.  2$UKUS.,    38    _Ԁ USUK.,JXXXX_Gabi_ԀDei_Ottati_,"TheRemarkableResilienceoftheIndustrialDistrictsofTuscany,"  inFrancesco_Cossentino_,Frank_Pyke_,andWerner_Sengenberger_,_eds_.,LocalandRegional  ResponsetoGlobalPressure:TheCaseofItalyandItsIndustrialDistricts(Geneva:  InternationalInstitutefor_Labour_ԀStudies,1996),3766;UK.,US.,}#XXXJX#_ Sebastiano_ Ԁ_ Brusco_ ,_ Giulio_ Ԁ_ Cainelli_ , t _ Fabrizia_ Ԁ_ Forni_ ,_ Mauro_ Ԁ_ Franchi_ ,Alberto_ Malusardi_ ,andRoberto_ Righetti_ ,"TheEvolutionof ` IndustrialDistrictsinEmiliaRomagna,"inFrancesco_ Cossentino_ ,Frank_ Pyke_ ,andWerner L  _ Sengenberger_ ,eds.,LocalandRegionalResponsetoGlobalPressure:TheCaseofItalyand 8  ItsIndustrialDistricts(Geneva:InternationalInstituteforLabourStudies,1996),1736.  2$UKUS.,    39    _Ԁ Maura_Franchi_,andVittorio_Rieser_,"Le_Categorie_Ԁ_Sociologiche_Ԁ_Nell'Analisi_ԀDel  _Distretto_Ԁ_Industriale_:_Tra_Ԁ_Comunit_Ԁe_Razionalizzazione_,"_Stato_Ԁe_Mercato_,no.33(1991):  45176. d  2$UKUS.,    40    _ԀForfurtherinformationon_Carpi_,see PhilipCooke,andKevinMorgan.The  AssociationalEconomy:Firms,RegionsandInnovation(Oxford:OxfordUniversityPress,  1998),Mark_Lazerson_,"FactoryorPuttingOut?KnittingNetworksin_Modena_,"in_Gernot_  _Grabher_,ed.,TheEmbeddedFirm:Onthe_Socioeconomics_ԀofIndustrialNetworks(London: t _Routledge_,1993).  2$UKUS.,    41    _Ԁ PhilipCooke,andKevinMorgan,"GrowthRegionsUnderDuress:Renewal  StrategiesinBaden_ Wrttemberg_ ԀandEmiliaRomagna,"inAshAmin,andNigelThrift,eds.,  Globalization,InstitutionsandRegionalDevelopmentinEurope(Oxford:OxfordUniversity  Press,1994),speaksmoredirectlytothepowerstrugglesinvolvedinthissetofchanges.We t donotwishtoarguethatthe_ Citera_ systemwasnotaninstanceofsuccessfulcollective ` adaptation,rathertosuggestthatstudentsofindustrialdistricts,eveniftheyaremore L  interestedintheconditionsforeconomicsuccessthandebatesininstitutionaltheory,should 8  paycloserattentiontothefrequently_ conflictual_ Ԁinteractionsthroughwhichadaptation(orin $ t somecaseslackofadaptation)takesplace.Wenotethatsomesociologists(e.g.Paul_ Hirst_ ,  ` andJonathan_ Zeitlin_ ,"FlexibleSpecializationVersusPost_ Fordism_ :Theory,Evidence,and  L  PolicyImplications.,"inMichael_ Storper_ ,andAllenJ.Scott,eds.,Pathwaysto  8  IndustrializationandRegionalDevelopment(London:_ Routledge_ ,1992))haveexplicitly $  arguedthatadaptationinindustrialdistrictsisoften_ conflictual_ ,butthatthisperspectivehas   notveryoftenbeentakenupinempiricalwork.Foranimportantexception,seeRichardM.   Locke.RemakingtheItalianEconomy(Ithaca:CornellUniversityPress,1995). 2$UKUS.,    42    _ԀInterviewwithNicolaBellini,May1999.  2$UKUS.,    43    _Ԁ_Gabi_ԀDei_Ottati_ {q(Dei Ottati 1996b)^Dei Ottati 1996b #6141C:\Program Files\ProCite5\Database\biblio.dat.pdt{, TheRemarkableResilience,_Brusco_Ԁetal, TheEvolutionof  IndustrialDistricts.  2$UKUS.,    44    _ԀOnthehistoryofthecluster,see Roberto_Curti_,and_Mauro_Ԁ_Grandi_,eds.PerNiente  Fragile:Bologna_Capitale_ԀDelPackaging[NotatAllFragile:Bologna,Capitalof  Packaging](Bologna:_Museo_Ԁdel_Patrimonio_Ԁ_Industriale_,1997);Vittorio_Capecchi_,"InSearch  ofFlexibility:TheBolognaMetalworkingIndustry,19001992,"inCharlesF._Sabel_,and t Jonathan_Zeitlin_,eds.,WorldofPossibilities:FlexibilityandMassProductioninWestern ` Industrialization(Cambridge:CambridgeUniversityPress,1997). uk(Capecchi 1997)1Capecchi 1997 #5691C:\Program Files\ProCite5\Database\biblio.dat.pdtu = 2$UKUS.,    47    _ԀBennettHarrison, OldWine    uk(Harrison 1994)Harrison 1994 #5201C:\Program Files\ProCite5\Database\biblio.dat.pdtu.*G+G (_25   /%` ` hp x /23  ../%` ` hp x /   *8+8 (_24  ," hp x ,23  ..," hp x ,  cd*OLE*WPC.<.<!.<0  f   f''  ' f "- -  b "--'-- f- "-  $pL/L/ppL "---'-- /Hpr:p /p/p/upu/LpL/--'-- fr: "-Lp L//pLp--'-- f--'-- a--'-- 0Lp--'-- 1Jp "- -  $zzz$$$ZhhZZ$$3f - 3f${{{$$++$huuhh$$   - $$$+88++$uuu$    - $$$8FF88$$$%%--'-- 0Lp--'-- f "-Lp pArial-ipipipipuiupLiLpp/ Arial-ppPP// Arial-----"System-'--- !4b  f2 d?Specialised Mechanical Engineering Firms in Bologna - 1971-1996             ----'--- f---'--- f----'--- f  2 Q0 2 7100 2 7200 2 7300 2 i7400 2 @7500 ---'--- f----'--- f 2 &1 --152 &15 -- 492 &50 -- 992 &T 100 -- 2492 & 250 -- 4992 &500 ----'--- f------'--- W; H2 @+Size Category of Firm (in No. of Employees)             ----'--- fArial- - - ---'- -- 3S  Arial- 2 Number of Firms-  - ---'- -- f- -   r:---'-- - s;---'-- - s; "- -   P}A  2 wV1971 ---'--- s;---'--- s; "- 3f - 3f PA  2 V1981 ---'---  s;---'---  s; "-  -   PA  2 V1991 ---'-- - s;---'-- - s; "- -   PA  2 V1996 ---'--- s;---'--- f---'--- f "-  -  b-- ' f '  'WPWin 6.0/OLE 1.0 Prefix Information MarkerExcel.Sheet.8Zࡱ> +  !"#$%&'()*Root Entry F@GgXOle CompObjfWorkbook.  FMicrosoft Excel WorksheetBiff8Excel.Sheet.89q Oh+'08@Xp Henry FarrellxHenry FarrellxMicrosoft Excel@ A\p Henry Farrell Ba= " =;'9X@"12Arial12Arial12Arial12Arial12Arial12Arial12Arial12Arial1c2Arial1c2Arial1c2Arial12Arial12Arial1T2Arial1T2Arial1T2Arial12Arial"IR"#,##0;\-"IR"#,##0!"IR"#,##0;[Red]\-"IR"#,##0""IR"#,##0.00;\-"IR"#,##0.00'""IR"#,##0.00;[Red]\-"IR"#,##0.00;*6_-"IR"* #,##0_-;\-"IR"* #,##0_-;_-"IR"* "-"_-;_-@_-,)'_-* #,##0_-;\-* #,##0_-;_-* "-"_-;_-@_-C,>_-"IR"* #,##0.00_-;\-"IR"* #,##0.00_-;_-"IR"* "-"??_-;_-@_-4+/_-* #,##0.00_-;\-* #,##0.00_-;_-* "-"??_-;_-@_-                + ) , *  ` Chart1'number of firms in Bol specialiaZR3  @@  P"Sezione=D ATTIVITA' MANIFATTURIERE[Sottosezione=DK FABBRICAZIONE MACCHINE ED APPARECCHI MECCANICI; INSTALLAZIONE E RIPARAZIONEXDivisione=29 FABBRICAZIONE MACCHINE ED APPARECCHI MECCANICI; INSTALLAZIONE E RIPARAZIONEAGruppo=29.5 Fabbricazione di altre macchine per impieghi speciali"Ripartizione=Italia nord-orientaleRegione=Emilia-RomagnaProvincia=BolognaClasse di addetti3 -- 56 -- 910 -- 1516 -- 1920 -- 4950 -- 99 100 -- 199 200 -- 249 250 -- 499 500 -- 999 1.000 e piu'Number of Employees1 --1515 -- 49 100 -- 249500 -  i bmrL<7'UdzU GU+p0 /br!0U h %W0!Vib(bblAblblAA?S}b+p0/bb/l,blAA?S}\b /S0bt00bk0sT00n00b 000bbb0b /bt0b. bPercent0]P(V(`<<(tb0`pb0jT0RpT00~Pe0P~݈0~PH?b90H-"b b=ZT0e0pjT0L0b@0bTw0x@bxWx0RT0PbxdbxbC[{0AT0bbbbw0bxZbzb0 bZx620Z b10z0  A"@; DZION??3` p&' ` p&' `  `  `  ` p&' 3d23 M NM4 3Q  1971Q ;Q ;Q3_4E4 3Q  1981Q ;Q ;Q3_4E4 3Q  1991Q ;Q ;Q3_4E4 3Q  1996Q ;Q ;Q3_4E4D$% M 3O&Q4$% M 3O&Q4FA0 ) 3OV 3 b#M&43*#M! M4% - eBM3O6& Q Z+Size Category of Firm (in No. of Employees)'4% +MZ3O'&Q "Number of Firms'4523  O43" z  3Oz % M3OQ4444% 8 BM:3O& Q ?Specialised Mechanical Engineering Firms in Bologna - 1971-1996'44e1 --151 --151 --151 --1515 -- 4915 -- 4915 -- 4915 -- 4950 -- 9950 -- 9950 -- 9950 -- 99 100 -- 249 100 -- 249 100 -- 249 100 -- 249 250 -- 499 250 -- 499 250 -- 499 250 -- 499500 -500 -500 -500 -e@\@ x@v@q@D@K@W@R@1@3@1@5@(@2@*@,@@@?@@@@@e>  A  dMbP?_*+%"FP??0sUT0bbbāb b   b bT0T0bOT00|b        ̞@@@0@$ ?$@@Z@@V@@T@$ @,@N@D@E@  C@@U@W@S@   9@Q@R@K@   9@Q@L@?@  "@(@4@4@  ?@E@R@K@  1@3@1@5@ $@0@ @(@ @@@@ @@?@ @?@@ ?@@?  @\@ x@v@q@ D@K@W@R@  1@D3@D1@D5@D (@2@*@,@ @D@D?D@D @@@@< 0((00000000000 000(  p  6NMM? P"K]`  A"??3` p&'` p&'` p&'`   `   `  ?3d23 M NM4 3Q  1971Q ;Q ;Q3_4E4 3Q  1981Q ;Q ;Q3_4E4 3Q  1991Q ;Q ;Q3_4E4 3Q  1996Q ;Q ;Q3_4E4D$% M 3O& Q4$% M 3O& Q4FA4 3OIK 3 b#M&43*#M! M4%  AM3OP&Q Z+Size Category of Firm (in No. of Employees)'4% CMZ3O+& Q "Number of Firms'4523  O43" o 3Oo % M3OQ4444%  AM:3O&Q ?Specialised Mechanical Engineering Firms in Bologna - 1971-1996'44eee >@ BOlePartOlePres000hSummaryInformation(DocumentSummaryInformation8D%.  f   f''  ' f "- -  b "--'-- f- "-  $pL/L/ppL "---'-- /Hpr:p /p/p/upu/LpL/--'-- fr: "-Lp L//pLp--'-- f--'-- a--'-- 0Lp--'-- 1Jp "- -  $zzz$$$ZhhZZ$$3f - 3f${{{$$++$huuhh$$   - $$$+88++$uuu$    - $$$8FF88$$$%%--'-- 0Lp--'-- f "-Lp pArial-ipipipipuiupLiLpp/ Arial-ppPP// Arial-----"System-'--- !4b  f2 d?Specialised Mechanical Engineering Firms in Bologna - 1971-1996             ----'--- f---'--- f----'--- f  2 Q0 2 7100 2 7200 2 7300 2 i7400 2 @7500 ---'--- f----'--- f 2 &1 --152 &15 -- 492 &50 -- 992 &T 100 -- 2492 & 250 -- 4992 &500 ----'--- f------'--- W; H2 @+Size Category of Firm (in No. of Employees)             ----'--- fArial- - - ---'- -- 3S  Arial- 2 Number of Firms-  - ---'- -- f- -   r:---'-- - s;---'-- - s; "- -   P}A  2 wV1971 ---'--- s;---'--- s; "- 3f - 3f PA  2 V1981 ---'---  s;---'---  s; "-  -   PA  2 V1991 ---'-- - s;---'-- - s; "- -   PA  2 V1996 ---'--- s;---'--- f---'--- f "-  -  b-- ' f '  ' ՜.+,D՜.+,\ PX|  Dell Computer Corporationn  number of firms in Bol specialiChart1  WorksheetsCharts 6> _PID_GUIDAN{B84BAAC0-83F1-11D3-AF2C-401950C10000} METAFILEPICTD6D%  f   f''  ' f "- -  b "--'-- f- "-  $pL/L/ppL "---'-- /Hpr:p /p/p/upu/LpL/--'-- fr: "-Lp L//pLp--'-- f--'-- a--'-- 0Lp--'-- 1Jp "- -  $zzz$$$ZhhZZ$$3f - 3f${{{$$++$huuhh$$   - $$$+88++$uuu$    - $$$8FF88$$$%%--'-- 0Lp--'-- f "-Lp pArial-ipipipipuiupLiLpp/ Arial-ppPP// Arial-----"System-'--- !4b  f2 d?Specialised Mechanical Engineering Firms in Bologna - 1971-1996             ----'--- f---'--- f----'--- f  2 Q0 2 7100 2 7200 2 7300 2 i7400 2 @7500 ---'--- f----'--- f 2 &1 --152 &15 -- 492 &50 -- 992 &T 100 -- 2492 & 250 -- 4992 &500 ----'--- f------'--- W; H2 @+Size Category of Firm (in No. of Employees)             ----'--- fArial- - - ---'- -- 3S  Arial- 2 Number of Firms-  - ---'- -- f- -   r:---'-- - s;---'-- - s; "- -   P}A  2 wV1971 ---'--- s;---'--- s; "- 3f - 3f PA  2 V1981 ---'---  s;---'---  s; "-  -   PA  2 V1991 ---'-- - s;---'-- - s; "- -   PA  2 V1996 ---'--- s;---'--- f---'--- f "-  -  b-- ' f '  'fh*OLE*WPC T$_ 46&____5139lׂ15 !? 77"? "'15 "Uc(/ Z6Times New Roman Regularc        @Institutions'15! #? t \ dB #? t \ d2,& # d l? l t \ l l d d!*"$? t \ dB $? t \ d2,& $ d l? l t \ l l d d'15 %v w3c(/ Z6Times New Roman Regularc        @Effectsontrustworthinessoruntrustworthinessofactors"&L -Ac(/ Z6Times New Roman Regularc        @Informationabouttrustworthinessoruntrustworthinessofactors(type)'15!*"( B ( 82 ( T Tff UTUT )G  _G _'15"* Q   c(/ Z6Times New Roman Regularc        @Trustworthiness'15!*"+_T : B +T : 2,& +Td qd q  q: q T Td **, 4x iW <W <_i_'15"-u c(/ Z6Times New Roman Regularc        @Trust'15! .DgB .Dg2,& .Dgaa / YY '15"0c(/ Z6Times New Roman Regularc        @Cooperation'15 1  '15 2Xf Xc(/ Z6Times New Roman Regularc        @  Factorsaffectinginstitutionalevolution(bargainingoverdistributionaloutcomes)'15!*"3@oB 3o2,& 3))--o--)(3H$ 1f!UKUS.,TRW6&A4X3' Letter 6&A43'LetterT  WPWin 6.0/OLE 1.0 Prefix Information MarkerPresentations.Drawing.10,ࡱ>   Root EntryPRP'RiOle WPG20 CompObj9}  !"#$%&'()*+,-./012345678:WPC T$_ 46&____5139lׂ15 !? 77"? "'15 "Uc(/ Z6Times New Roman Regularc        @Institutions'15! #? t \ dB #? t \ d2,& # d l? l t \ l l d d!*"$? t \ dB $? t \ d2,& $ d l? l t \ l l d d'15 %v w3c(/ Z6Times New Roman Regularc        @Effectsontrustworthinessoruntrustworthinessofactors"&L -Ac(/ Z6Times New Roman Regularc        @Informationabouttrustworthinessoruntrustworthinessofactors(type)'15!*"( B ( 82 ( T Tff UTUT )G  _G _'15"* Q   c(/ Z6Times New Roman Regularc        @Trustworthiness'15!*"+_T : B +T : 2,& +Td qd q  q: q T Td **, 4x iW <W <_i_'15"-u c(/ Z6Times New Roman Regularc        @Trust'15! .DgB .Dg2,& .Dgaa / YY '15"0c(/ Z6Times New Roman Regularc        @Cooperation'15 1  '15 2Xf Xc(/ Z6Times New Roman Regularc        @  Factorsaffectinginstitutionalevolution(bargainingoverdistributionaloutcomes)'15!*"3@oB 3o2,& 3))--o--) PRP'Corel Presentations 10 Drawing Embed SourcePresentations.Drawing.109qBOlePart;OlePres000 LT@ ^  T@L      5B(@@@xxxx{{{{- "-!E9--Times New Roman-- .   "System--2 z Institutions   -    5B(@@@ޙXxx9--$@3@9HVOO3@3--    5B(@@@@--$3"1))33--Times New Roman-- .  --2 q Effects on  q--"2 trustworthiness or  --%2 untrustworthiness of  --2 actors -- .  --!2 zKInformation about   z--"2 Ktrustworthiness or  --02 Kuntrustworthiness of actors  --2 K(type)r-    5B(@@@@--$ xx`ll`x--  5B(@@@@--5--- .  --2 Trustworthiness    -    5B(@@@@--$ --  5B(@@@@--2--- .  --2 Trust O-    5B(@@@@--$DGDc:cM`cWcWGDG--  5B(@@@@--L--- .  --2  Cooperation   -  5B(@@@@--`E{--- .  --^2 3:Factors affecting institutional evolution (bargaining over                 3--+2 Lrdistributional outcomes)       LU-    5B(@@@@--$rrr-- METAFILEPICTLLT@ ^  T@L      5B(@@@xxxx{{{{- "-!E9--Times New Roman-- .   "System--2 z Institutions   -    5B(@@@ޙXxx9--$@3@9HVOO3@3--    5B(@@@@--$3"1))33--Times New Roman-- .  --2 q Effects on  q--"2 trustworthiness or  --%2 untrustworthiness of  --2 actors -- .  --!2 zKInformation about   z--"2 Ktrustworthiness or  --02 Kuntrustworthiness of actors  --2 K(type)r-    5B(@@@@--$ xx`ll`x--  5B(@@@@--5--- .  --2 Trustworthiness    -    5B(@@@@--$ --  5B(@@@@--2--- .  --2 Trust O-    5B(@@@@--$DGDc:cM`cWcWGDG--  5B(@@@@--L--- .  --2  Cooperation   -  5B(@@@@--`E{--- .  --^2 3:Factors affecting institutional evolution (bargaining over                 3--+2 Lrdistributional outcomes)       LU-    5B(@@@@--$rrr--)!dxdx( $ Figure  1   4 2$UKUS.,    48    _ԀSeeJack  Knightp  qg (Knight 1992) Knight 1992 #1971C:\Program Files\ProCite5\Database\biblio.dat.pdtq, InstitutionsandSocialConflict;  Russell_Hardin_ԀCollective  Action(Baltimore:JohnsHopkins,1982)Q  qg (Hardin 1982) Hardin 1982 #1871C:\Program Files\ProCite5\Database\biblio.dat.pdtq;_Mancur_ԀOlsonTheLogicofCollectiveAction  (NewYork:_Schocken_,1968).gji&OLE 2.0 Box <=8C HKKKK  2$UKUS.,    50    _Ԁ Ronald_Dore_,"GoodwillandtheSpiritofMarketCapitalism,"inRichard  _Swedberg_,andMark_Granovetter_,eds.,TheSociologyofEconomicLife(Boulder,Colorado:  _Westview_ԀPress,1992).  2$UKUS.,    51    _ԀNote,however,thatthereisnoimplicationinourargumentthatthedominationof  largefirmsishistoricallyinevitable.Insofarasthisdominanceisaproductofexternalfactors  (typically,changesindemandonfinalmarkets),itmaybeattenuatedorreversedbyfuture  changesintheseexternalconditions.fqb4[RefList]ProCite - Reference List qg[][RefList - institutional ev]07C:\PROGRAM FILES\PROCITE5\Styles\Standard\Chicago B.posTimes New Roman Reference List. \,yP~();q *5+5 (_23 ` ) hp x )23  ..) hp x ) ` ($$  0    2$UKUS.,    45    _ԀMoregenerally,see EdwardH.Lorenz,"NeitherFriendsnorStrangers:Informal  NetworksofSubcontractinginFrenchIndustry.,"inDiego_ Gambetta_ ,ed.,Trust:Makingand  BreakingCooperativeRelations(Oxford:BasilBlackwell,1988).(3$ 1f!UKUS.,TRW6&A4X3' Letter 6&A43'LetterT    0  .  2$UKUS.,    53    _ԀOnthepotentialroleofgovernmentinstrengtheningweakeractors,seeJack  Knight, InstitutionsandSocialConflict.Luigi_Burroni_ԀandHenryFarrelldiscussthisat  greaterlengthinforthcomingwork.*2+2 (_22  &hhp x &23  ..&hhp x &    2$UKUS.,    2    _Ԁ  See,e.g.,f  Sidney_Tarrow_,"MakingSocialScienceWorkAcrossSpaceandTime:A  CriticalReflectiononRobertPutnamsMakingDemocracyWork,"AmericanPolitical  ScienceReview90,no.2(1996):38997;    USUK.,JXXXXMargaretLevi,"SocialandUnsocialCapital:A  ReviewEssayofRobertPutnamsMakingDemocracyWork,"Politics&Society24,no.1 t (1996):4555;UK.,US.,#XXXJX-#_Filipo_Ԁ_Sabetti_,"PathDependencyandCivicCulture:SomeLessonsFromItaly ` AboutInterpretingSocialExperiments,"PoliticsandSociety24,no.1(1996):1944;USUK.,JXXXXCarlo L  _Trigilia_,"_Capitale_Ԁ_Sociale_Ԁe_Sviluppo_ԀLocale,"_Stato_Ԁe_Mercato_,no.3(1999):41940; 8  UK.,US.,O#XXXJXa#_Arnaldo_Ԁ_Bagnasco_,"_Teoria_ԀDel_Capitale_Ԁ_Sociale_ԀePoliticalEconomy_Comparata_,"_Stato_Ԁe $ t _Mercato_,no.3(1999):35172. y 2$UKUS.,    54    _Ԁ _Hardin_, cite ._Avner_Ԁ_Greif_.HowDoSelfEnforcingInstitutionsEndogenously  Change?InstitutionalReinforcementandQuasiParameters(Paperpresentedatthe  InternationalSocietyfortheNewInstitutionalEconomicsAnnualMeeting,September1315,  2001),offerssomeinitialwaysofcomingtogripswithpositivefeedbackloopsofthissort.*/+/ (_21  #p x #23  ..#p x #  *,+, (_20 h  p x 23  .. p x h *)+) (_19  pp x 23  ..pp x   *&+& (_18   x 23  .. x   *AA (_17  5+ ` hp x 523  Ԁ5+ ` hp x 5  *GG (_16   /%` ` hp x /23  Ԁ/%` ` hp x /   *88 (_15  ," hp x ,23  Ԁ," hp x ,  *55 (_14 ` ) hp x )23  Ԁ) hp x ) ` *22 (_13  &hhp x &23  Ԁ&hhp x &  *// (_12  #p x #23  Ԁ#p x #  *,, (_11 h  p x 23  Ԁ p x h *)) (_10  pp x 23  Ԁpp x   (&& &_9   x 23  Ԁ x   (AA &_8  5+ ` hp x 523  5+ ` hp x 5  (GG &_7   /%` ` hp x /23  /%` ` hp x /   (88 &_6  ," hp x ,23  ," hp x ,  (55 &_5 ` ) hp x )23  ) hp x ) ` (22 &_4  &hhp x &23  &hhp x &  (// &_3  #p x #23  #p x #  (,, &_2 h  p x 23   p x h ()) &_1  pp x 23  pp x   &&& $_   x 23   x   i&Draw Object =8C HKKKKLevel 1Level 2Level 3Level 4Level 5 2$UKUS.,    52    _ԀInterviewwithNicolaBellini. 2$UKUS.,    18    _ԀJackKnight, Models,InterpretationsandTheories; TheBasesofCooperation. 2$UKUS.,    19    _ԀDouglassNorth, Institutions,InstitutionalChange;OliverE.Williamson, The  EconomicInstitutionsofCapitalism. 2$UKUS.,    20    _ԀJackKnight, TheBasesofCooperation. { 2$UKUS.,    46    _ԀThemotivationformakingpackagingmachinesacrossmorethanonesectoristo  stabilisefutureincomethroughmakingitlessdependentonthechangingfortunesof  customerswithinaparticularsector(suchaspharmaceuticalsorfoods).  2$UKUS.,    49    _Ԁ  Cite inColinCrouch,PatrickLe_Gals_,Carlo_Trigilia_,andHelmut_Voelzkow_.  LocalEconomiesinEurope:RiseorDemise(Oxford:OxfordUniversityPress,2001). 1f!UKUS.,TRW6&A4X3' Letter 6&A43'LetterT  _   OXXTrust,InstitutionsandInstitutionalEvolution:IndustrialDistrictsand t theSocialCapitalHypothesis  HenryFarrellandJackKnight " r January2002   #XX O#  Muchcurrentworkinthesocialsciencesseekstounderstandtheeffectsoftrustandsocial F  capitaloneconomicandpoliticaloutcomes.However,thesourcesoftrustremainunclear.Inthis 2  article,weseektodemonstratetherelevanceofinstitutions,andinparticularinstitutionalchange,   fortrustrelationships.Webeginbyarticulatingabasictheoryoftherelationshipbetween   institutionsandtrust,showinghowinstitutioninducedexpectationscanaffectthesortsof  generalizedsocialtrusttheorizedbyscholarsofsocialcapital,andhowinstitutionalevolution  mayinmanyinstancesbetracedbacktochangesinpowerrelationsamongactors.Wethen ~ continuebyapplyingthistheorytoindustrialdistricts,geographicallyconcentratedareasof j smallfirmproduction,whichinvolveextensivecooperationintheproductionprocess.Changes V intheoptionsavailabletoactorsseemtobeleadingtochangesintheirpowerrelations,andin B thepatternsofproduction,asourtheorywouldpredict.Wesuggestthatthesechangeshave .~ knockonconsequencesfortrustandcooperationamongactors,andconcludebydiscussingthe j moregeneralimplicationsofourfindings. V   . _ zCOYIntroduction    Howdophenomenasuchastrustandsocialcapitalactuallyaffectpoliticaland ` economicperformance?Thatthereisapositiverelationshipbetweentrustandsocialcapital, 8  ontheonehand,andpoliticalandeconomicsuccess,ontheother,hasbeentheprimary  ` conclusionofalargebodyofresearchinthesocialsciencesinthelastdecade.Beginning  8  withtherenewedinterestengenderedbyRobertPutnamsMakingDemocracyWorkand   continuingtothepresent,researchershaveattemptedtodocumentthevariouswaysinwhich   trustandsocialcapitalcanimprovetheperformanceofpoliticalandeconomicsystems.K #  1       p   ButmuchofthisresearchhassufferedfromtheweaknessesforwhichPutnams H originalefforthasbeencriticized.w #  2      ׀Onelineofcriticismhas_ centered_ Ԁontheexcessiveuseof  p macroleveldata,whileanotherhasfocussedontheweakspecificationoftherelevantcausal H relationships.Anditiseasytoseethatthesetwocriticismsarerelated:surveydataaloneis   inadequatetospecifythecausalconnectionswhichmustunderliePutnamstheories,which  linktwomacrolevelphenomena,thepoliticalandeconomicsuccessoflargesocial  z 8XXdd8   collectivities,andgeneralizedtrustandcooperation,throughmicrolevelphenomenasuchas  networks,associationsandtheeffectsofinstitutionsonbeliefsanddecisionmaking.  Putnamsargumentfurthermorelumpsnetworkeffects,normsofreciprocity,institutionsand ` trusttogetherascomponentsofsocialcapital,butfailstostatehowtheyrelatetoeachother. 8  Italsoappearstorelytoaverygreatextentonlearningprocesseswithinnonpolitical  ` associationsasasourceofsocialcapital,anassertionwhichsomescholarshavefound  8  difficulttocredit.Moregenerally,whilePutnamshowswhatappeartobestrongcorrelations   andtemporalcausalrelationshipsbetweenmacrolevelvariables,hedoesnotclearlyspecify   themicrolevelrelationshipsthroughwhichcausationtakesplace. #  3       p   Whatisneededisamorefullydevelopedexplanationofthespecificwaysinwhich H trustandsocialcapitalaffectpoliticalandeconomicperformance.Amoreadequateand  p persuasiveaccountwould,ataminimum,dothreethings.First,itwouldestablishmicrolevel H explanationsthatidentifythecausalrelationshipsamongtrust,socialcapital,institutionsand   socialcooperation.Second,itwouldpresentadynamicaccountofthewaysinwhichtrust  andsocialcapitalcanemergeandbemaintainedovertime.Third,itwouldprovideawayto  assesstheconditionsunderwhichthisdynamicprocessismoreorlesslikelytooccur. X    Onebodyoftheorywhichwethinkcouldusefullycontributetothismorefully 0"  developedaccountisinstitutionaltheory.Inthelasttwodecadestherehasbeenarevolution, $X" muchofwhichusesideasfromtransactioncosteconomics@ #  4      ׀andnoncooperativegame %0!$ theory,T #  5      ׀intheanalysisofthesourcesofinstitutionaldevelopmentandchange.  Knight  qg (Knight 1998) =Knight 1998 #5811C:\Program Files\ProCite5\Database\biblio.dat.pdtqnotes  thatthistypeofinstitutionalanalysiswouldseemtobeespeciallywellsuitedtothekindsof  questionsaskedbystudentsoftrustandsocialcapital. |  #  6      ׀ThisviewisreinforcedbyLeviand ` _ Hardin_ Ԁamongotherswhohavearguedthattrustmaybesustainedbyappropriate 8  institutions. #  7      ׀  `   Theunderlyingintuitionisasfollows:Ifinstitutionsmayexertanindependenteffect  8  ontrustworthiness,andthusonhowsocialactorstrustordistrusteachother,thenitfollows   thattheevolutionofinstitutionsmaybeexpectedtohaveanimpactontrustworthiness,and   thustrust,andthuscooperationamongindividuals.Andasinstitutionschange,trustbetween p individualsisalsolikelytochange,perhapsinpredictableways.Thisfurthersuggeststhatwe H mightlearnsomethingabouttheconditionsunderwhichtrustandsocialcapitalwillemerge  p andbemaintainedinasocietybystudyingthewaysinwhichsocialinstitutionsevolveinthe H samesociety.     Aninstitutionalaccountoftrustwouldthushaveimportantadvantagesovercurrent  argumentsaboutsocialcapital.Itwouldhaveclearandexplicitmicrofoundations,witha  morerigorousspecificationofcausalrelations.Anditwouldofferatheoreticallensthrough  whichtherelationshipbetweenindividualactionandsocialoutcomescouldbeexamined.In  thispaper,wesetout,inapreliminaryway,justsuchanaccountoftherelationshipbetween ` institutions,trustandcooperationbetweenindividuals,buildingonourpreviouswork._  #  8      _ ԀOur 8  theoryisappliedtoevidencedrawnfromindustrialdistrictsincentralandnortheasternItaly,  ` andinparticularfromthepackagingmachinerymanufacturingdistrictofBologna.These  8  districts,inwhichsmallfirmscooperateextensivelywitheachother,provideanimportant   testcaseforargumentsaboutsocialcapitalanditseffects.ForPutnam,theirexistenceis   evidenceofthe  macrolinkbetweencivicsandeconomics...atthe microlevel.  #  9      ׀Hegoes p ontoargue H 0  Whatiscrucialaboutthesesmallfirmindustrialdistricts,concludemostobservers,is  p mutualtrust,socialcooperation,andawelldevelopedsenseofciviccommunityin  \ short,thehallmarksoftheciviccommunity.Itisnosurprisetolearnthatthesehighly H productive,smallscaleindustrialdistrictsareconcentratedinthoseveryregionsof 4 northcentralItalythatwehavehighlightedas_ centers_ Ԁofcivictraditions,ofthe   contemporaryciviccommunity,andofhighperformanceregionalgovernment.|  #  10       "" IndustrialdistrictsareverynearlytheonlyexamplethatPutnamprovidesofsocialcapitalin  actionatthemicrolevel.TheythusconstituteanuniquetestcaseforPutnamshypothesis X  that socialcapitalisoneof,andperhapsthesinglemostimportant,rootcauseofeconomic  andsocialsuccess.Morespecifically,theyprovideasettinginwhichthecausalfactors  underlyingcooperationcanbeobservedmoreclosely.Isthebroadercategoryof social ` capital,asdefinedbyPutnam,necessarytounderstandtherootcausesofcooperation?Oris 8  thenarrowerframeworkofinstitutionalanalysis,whichspecifiescausalrelationshipsbetween  ` variablesmoreclearly,sufficienttothetask?  8    Inthispaper,webeginbysettingoutasimplemodelofhowinstitutionsmayaffect   trustandtrustworthiness.Wethengoontoexaminecooperationinindustrialdistricts,   canvassingevidencewhichindicatesthatinformalinstitutionsdoindeedplayahighly p importantroleincreatingthenecessaryconditionsfortrust,trustworthinessandcooperation. H Next,weshowthatthereisevidencetosuggestthatchangeinindustrialdistricts,contraryto  p theargumentsofmanyscholars,involvesstrugglesoverpoweranddistributionalbenefits. H Changingpowerrelationswouldalsoseemtobelinkedtochangesincooperative   relationshipsbetweenfirms.Weconcludebyemphasizingthat(1)thisevidenceprovides  supportforamodelofinstitutionalchangeinindustrialdistrictsthatseespowerrelationsasa  keycausalvariable,(2)thereisevidenceofasignificantrelationshipbetweenparticular X  institutionalarrangementsandlevelsoftrustandtrustworthinessinanareaand(3)trust 0"  relationswillthusmateriallybeaffectedbychangesintherelativepowerofactors,or $X" changesinthedesiresofactorspowerfulenoughtoensurethattheirinterestsprevail. %0!$ Section1InstitutionsandTrust:TheoreticalBeginnings )$(   Theclaimthatinstitutionshaveanimportanteffectontrustisfrequentlymadeinthe @-(, literature.Itisapparentthatinstitutionshavesubstantialconsequencesfortrustinmanyareas /h*. ofsociallife,andperhapsareespeciallyimportantineconomicrelations.As_ Hardin_ Ԁargues,  thefactthatexistinginstitutionsmilitateagainstcertainkindsofopportunismwhich  perhapsareextremelydamagingmayremoveonemajorsourceofinsecurityinsuch ` relationships,andallowustotrustandcooperatewitheachothermoreeasilyinother 8  matters._  #  11      _ ԀThereseemstobesomeempiricalevidenceforthisclaimintheeconomicrealm,  ` wherestudiesindicatethatastrongandenforceablebodyofcontractlaw,asexistsin  8  Germany,islinkedtomorediffuseformsofcooperationbetweenactors._ | #  12      _      Forthepurposesofthispaper,wewishsimplytodefinetrustasasetofexpectations   heldbyonepartythatanotherpartyorpartieswillbehaveinanappropriatemannerwith p regardtoaspecificissue.Tospecifythisrelationshipbetweentrustandsocialinstitutions,we H employthe encapsulatedinterestaccountoftrust._ "  #  13      _ ԀOnthisaccount,trustispredicatedon  p trustworthiness,ormoreaccuratelyonperceivedtrustworthiness,inathreepartrelationship. H XtrustsYwithregardtomatterZ,becauseXbelievesthatitisinYsinteresttobehaveina   trustworthyfashionwithregardtomatterZ.XtrustsYtotheextentthatshebelievesthatYs  interestencapsulatesherownwithregardtothematterinquestion.For_ Hardin_ ,thisisasfar  asthetrustrelationshipgenerallygoes:personalrelationshipsamongpeopleforwhomitisin X  theirownselfinterest,giventhecontextoftherelationship,tobetrustworthy.Herewewant 0"  toextendthedefinitiontoincludethepossibilityoftrustinotherrelationshipswithwhich  Putnamandothersaremostconcerned:generalizedtrustinimpersonalrelationshipsina  society.Intheserelationshipsthedefinitionoftrustwouldbemodifiedfrom XtrustsYto `  XtrustspeopleoftypeY. 8    Underthisdefinition,institutions,whichwetaketobesetsofrules,mayhavequitea  ` widereachingeffect;manyformsofapparentlydiffusetrustdorelyintheendonactors  8  interests,whichmaybesubstantiallyaffectedbyinstitutions.Wesuggestasimplemodelof   therelationshipbetweeninstitutionsandtrust,whichpositsthatinstitutionsaffecttrust   betweenactorsinsofarasthey(a)giveactorsanincentivetobehaveinatrustworthy(or,in p somecircumstances,untrustworthy)mannerand/or(b)affectsocialbeliefsaboutthe H trustworthinessoruntrustworthinessofactorsthoroughtheirdisseminationofinformation  p abouttheexpected_ behavior_ Ԁofothers. H   Considerthesepossiblemechanismsinturn.First,institutionsdirectlyaffectthe   incentivesforaction.Indoingso,theycanfostertrustworthiness.Totakeaverysimple  example,ifIamawarethatthereexistsaninstitutionsuchthatIwillbeseverelypunishedifI  cheatinacertainsortoftransaction,andiftheexpectedcostsofpunishmentoutweighthe X  expectedbenefitsofcheating,myoptimalstrategywillbetoremainhonest.Thus,inmany 0"  situations,Icanbeconsideredtobetrustworthywithregardtothistransaction:otherswho $X" knowoftheexistenceofthisinstitutionalrule,andofmysubjectiontoit,havegoodreasonto %0!$ trustme. '#&   Manyinstitutions,bothformalandinformal,createsuchincentives.Inthisway )$( institutions,throughincentivesandsanctions,mayserveastheanchorforquitecomplextrust h+&* relationships.But,itisunlikelythatinstitutionswillentirelyremovetheriskofmalfeasance, @-(, andincontextswheretheydo,trustmaynotbeanappropriateanalyticalconcept:trustasan /h*. explanatorycategoryonlyappliesinsocialsituationswherethereisarealriskofthetrusted  partydefaulting.    Andthisleadstothesecondmechanismforinstitutionaleffectontrust:dissemination ` ofinformationabouttheexpectedactionsofothers.Socialinstitutionsinstantiatecommonly 8  heldbeliefsaboutthe_ behavior_ Ԁofothers.@ #  14      ׀Byknowingthecontentofinstitutionalrules,  ` socialactorscanestablishstableexpectationsabouthowothersaregoingtoactincommon  8  socialsituations.Whenthecontentoftherulesdictatecooperative_ behavior_ ,socialactorscan   usethisinformationtodevelopexpectationsaboutthelikelihoodthatotherswillcooperate   andthenmakeadecisiontoactaccordingly.Inthisway,socialinstitutionsgeneralize p expectationsbeyondthoseoftheactorswhomweknowpersonally. H   Moreover,thisfactabouttheinformationeffectsofsocialinstitutionsonsocialbeliefs  p providesawayofmakingsenseoftheideathatwemaybegintocooperateundertheshadow H ofinstitutionsandendbytrustingeachotherinwaysthatcannotbereducedtothedirect   effectsofinstitutioninducedexpectations.Toseethis,weneedtoconsiderhowinstitutions  mightcontributetoadynamicprocessoflearningaboutthetrustworthinessofothers.Todo  soweneedtobecarefultomaintaintwoimportantdistinctions:(1)betweenthegeneral X  socialbeliefsthatconstitutetrust andthedirectsocialbeliefsspecifictoanyparticularsocial 0"  institutionand(2)betweenthecooperationinherentininstitutionalcomplianceandthe $X" cooperationthatwewanttoexplainthroughtheuseoftheconceptsoftrustand %0!$ trustworthiness. '#&   Bymaintainingthesetwodistinctionswecansupportthefollowingplausibleaccount )$( oftherelationshipamonginstitutions,trustandsocialcooperation:cooperationthrough h+&* COY  C C  compliancewithinstitutionalrulesaffectsanactorsgeneralbeliefsaboutthepropensityof  otherstocooperate(theirleveloftrustworthiness)whichaffectsthatactorswillingnessto  cooperateatsomesubsequentpointintimeorinsomeothercontext.Suchaprocesswould ` involvethreebasicstages.First,actorXobservesactorYscompliancewiththebasicnorms 8  andlawsinacommunity.Second,fromthisinformationactorXdrawstheinferencethat  ` actorYand/orpeoplelikeactorYaretrustworthy,thattheyarelikelytocooperateinother  8  socialsituations.Third,becauseofhisdevelopedbeliefaboutpeopleof typeY,actorXis   morewillingtocooperatewith typeYactorsinfuturesocialsituations,situationsthatmay   ormaynotbegovernedbyexistingsocialinstitutions. p   Onthisaccount,generalizedtrustisinimportantwaysafunctionofeveryday H compliancewiththeprevailingsocialinstitutionsinacommunity.Thatis,generalbeliefs  p aboutthetrustworthinessofothersare,inlargepart,afunctionofourspecificexpectations H aboutthewillingnessofotherstocomplywiththeprevailingsocialinstitutions,whenthose   institutionsconducttowardstrustworthy_ behavior_ .Totheextenttowhichthisrelationship  betweengeneralandspecificbeliefsholds,theexistenceofsuchphenomenaastrustand  socialcapitalisaproductofeverydayrulecompliance.Thetrustworthinesscreatedby X  institutionalcomplianceleadstogeneralizedtrustinthecommunity._ ! #  15      _ Ԁ 0"    Iftheabovesetofargumentsholdmerit,theyfurtherimplythatinstitutionalchangein $X" agivensocialsetting,insofarasitaffectstheinterestsofactorsinbehavinginatrustworthy  oruntrustworthyfashion,oraffectsthecirculationofinformationaboutthetrustworthinessor  untrustworthinessofactors,willhaveimportanteffectsontrustbetweenactorsinthatsetting. ` Thus,institutionalchangeoughttohaveconsequencesfortrust,independentofotherfactors. 8  Explanationsofinstitutionalchangeremainahighlycontestedtopic.Manyrationalchoice  ` modelsofferamoreorlessfunctionalistaccountofinstitutionalevolution,arguingthat  8  institutionalevolutionisdrivenbyefficiencyconsiderations,astancewhichhasledtomuch   criticismbothfromwithinandwithouttheapproach._ $ #  16      _ ԀYetasMillerargues, themost   fundamentalresultsinrationalchoicehavegivenusgoodandsufficientreasonsforexpecting p dysfunctionalresultsfromindividualrationalchoices,A #  17      ׀suggestingthatinstitutionswillby H nomeansnecessarilybeefficientinsofarasactorsarerationalandfacefundamentalsocial  p dilemmasintheconstructionofinstitutions. H   Thisisastrueoftheinformalinstitutionswhicharemostclearlyimplicatedinsocial   capitalargumentsasofthosemoreformalinstitutionswhicharisefromstructuredbargaining  betweenactors.Knight(1992)suggeststhatinformalinstitutions,ratherthantendingtowards  efficiencyinanygeneralsense,arethecontingentbyproductofpowerstrugglesbetween X  actors,exceptunderquitespecialcircumstances.Inlaterwork,  #  18      ׀hespecifiesmoreclearlythe 0"  conditionsunderwhichapowerbasedbargainingtheoryismostlikelytoexplaininstitutional  emergenceandchange,andtheconditionsunderwhichotherapproachesanevolutionary  approachtotheemergenceofconventions,orselectionthroughcompetitionarelikelyto ` provideabetteraccount.Whilethebargainingapproachemphasisesdistributionalgainsfor 8  particularactors,boththeevolutionaryandcontractapproachesstressimprovedsocial  ` efficiency.  8    Usingasimpletwopersonmixedmotivecoordinationgame,Knightsuggeststhatthe   evolutionaryapproach(whichreliesontheoriesofsalience)islikelytoworkbestwhen   partiesaremoreorlessindifferentbetween beneficialequilibriumoutcomes.Contract p accountsofinstitutionalemergencearelikelytoprovideagoodexplanationwhenneitherof H theactorsismorepowerfulthantheother.Bargainingaccountswillhaveexplanatoryweight  p whereneitheroftheseconditionsholds;inotherwordswhendifferentequilibriumoutcomes H havedifferentdistributionalconsequences,andwhenactorsbargainingpowertheirability   toachieveoutcomesthat_ favor_ Ԁtheirspecificdistributionalinterestsvaries.Powerhereisa  functionofthebreakdownvalues,thepayoffstoeachplayerwhencooperationisnot  achieved.Someactorswillbemoreadverselyaffectedbybreakdownthanothers,and,asa X  consequencewillbemoreeagertoachievecoordination,eveniftheyhavetosettlefora 0"  smallerpieceoftheoverallpie.Incontrast,other morepowerfulactorswillbeless $X" seriouslyaffectedbyafailuretoachievecoordination,andwillbeabletousetheirrelative %0!$ indifferenceasleveragetosecuredistributionalbenefits.Thesebreakdownvaluesarea '#& functionofthealternativesavailabletoactorsinthecaseofnoncoordination;actorswho )$( haveawidevarietyofalternativesinthecaseofbreakdowncanusethisfacttopressformore h+&* _ distributionally_ Ԁadvantageouscoordinationsolutions. @-(,   Knightsmorerecentworkthereforenotonlyprovidesatheoryofhowinstitutions /h*. mayderivefrombargainingbetweenactors,buta metatheoryofthecircumstancesunder  whichabargainingapproachisbetterabletoexplainoutcomesthanotherapproaches,and  viceversa.Forexample,actorsmayfindthemselvesinaninitialsituationwhereeachofthem ` facesmoreorlessthesamealternatives,andthusthesamebreakdownvalues;therewillbe 8  relativelyfewasymmetriesofpower,andwhateverinstitutionsarisefromvoluntary  ` contractingbetweentheseindividualsmayreflectthedesireforefficiencygains. #  19      ׀However,  8  ifexternalcircumstanceschangesothatsomeactorsacquirenewalternativesincaseof   breakdown,whereasotheractorsfacethesamesetofalternativesastheyhadpreviously(ora   moreconstrictedset),thenasymmetriesofpowermayemerge,andabargainingtheoryof p institutionalevolutionwillbegintoprovideabetterexplanationthanacontracting/efficiency H one.h #  20        p   Thus,insummation,onecanprovideasomewhatstylised,butarguablyuseful,model H oftherelationshipbetweensocialinstitutionsandtrust.Institutionsarelikelytoaffecttrust   insofarastheyprovideinformationaboutthepossibleactionsofotherstoanactorina  strategicsetting.IfIknowthataninstitutionexistssuchastopunishuntrustworthy  behaviour,Imaybeinclinedtobehaveinatrustworthyfashion,andotherswhoknowofthis X  institutionwilllikelytrustmewithregardtothematterinquestion.Alternatively,an 0"  institutionmayprovideinformationaboutthecompliance_ behavior_ Ԁofotheractorsin $X" institutionalsettings,whichallowsmetobebetterinformedastothetrustworthinessof %0!$ potentialcooperativepartners. '#&   Institutionalchangewilllikelyoccurasaresultofchangesinthepowerrelationships )$( betweenactors,orintheoutcomesdesiredbyactorswhoarepowerfulenoughtoprevailin  bargainingwithweakerones.Suchinstitutionalchangesmayhaveimplicationsfortrust  betweenactors,insofarastheyaffectthewillingnessofactorstobehaveinatrustworthy ` fashion,ortheavailabilityofinformationaboutthetrustworthiness(orlackofsame)of 8  actors.Inturn,changesintrustworthinessandintrustbetweenactorsislikelytoleadto  ` changesintheextentandformofcooperationbetweenactors.Thus,themodelwesetout  8  clearlyspecifiesasetofcausalrelationshipswhichmayplausiblyaffecttrustandcooperation   betweenactors(seeFigure1).    H Italsohaslimitationstowhichweturnintheconclusion,but,asdiscussedbelow,itseemsto H provideagoodfitwithobserveddataatleastinthecontextofindustrialdistricts.   Section2TrustandCooperationinIndustrialDistricts    Overthelasttwentyfiveyears,abodyofwork,primarilyinthefieldsofeconomic 0"  sociologyandeconomicgeography,hasexamined industrialdistricts.Theseare $X" geographicalzonescharacterisedbysmallfirmsspecialisinginaparticularareaof %0!$ production.Theyhavebeenhighlyeconomicallysuccessful.Assuch,theyprovidean '#& importantcounterexampletotraditionalviewsofeconomicdevelopment,whichtendto )$( proclaimeithertheefficiencypromotingvirtuesofthecompetitivemarket,inwhichfirms h+&* interactonarelativelyanonymousbasis(ormoreprecisely,theiridentityisirrelevantto @-(, transactions)oroftheinternalhierarchyoffirmsorotherorganisations(whereauthoritative /h*. decisionsaresupposedlymadebyhierarchicalsuperiors).Thesesmallfirmdistrictsare  neither.Whilefirmsinteractcontinuouslywitheachother,thestrictconditionsofimpersonal  competitivemarketsdonotevenbegintoapply.Noristhereanyoverarchinghierarchical ` authority.Yetsuchlocaleconomiesareoftencapableofequalling,andsometimesof 8  outdoing,thosevarietiesoforganisationwhicharemorefamiliartopoliticaleconomists.The  ` basisfortheirsuccessappearstobediffusepatternsofcooperation.Unlikethestandard,  8  verticallyintegratedfirm,whereallstagesoftheproductionprocessarehierarchically   organisedwithinasingleorganisation,particularphasesoftheproductionprocessareputout   tospecialisedfirmswhocooperatewitheachotherinmakingtheproduct.Intheidealtypical p industrialdistrict,productionisorganizedby finalfirms,whichengagewithcustomerson H thefinalmarket,takeorders,anddrawupplansorspecifications.Theythensubcontractout  p theactualprocessofproductiontoahostofsmallersubcontractors,eachofwhichmay H specialiseinonlyonephaseofproduction,andthenassemblethefinishedproductandbring   ittomarket.Sucharadicaldecentralisationofproductionishighlyunusualinadvanced  Westerneconomies.D #  21      ׀YetithasbecomerelativelywidespreadincertainpartsofItaly,and  hasarguablybeenthesourceofItalyseconomicsuccessinmanysectorsoverthepastthree X  decades.Furthermore,thispatternofproductionisfoundinquitedifferentsectorsof 0"  production;notonlymore traditionalsectorssuchastextiles,clothing,footwearand $X" jewellery,butalsomoreadvancedonessuchasmechanicalengineeringandmedical %0!$ equipment.Therehasbeenastronggeographicalbias;thesedistrictstendtobefoundinthe '#& _ center_ Ԁandthenortheastofthecountry,thesocalled ThirdItaly(terzaItalia)._ E| #  22      _  )$(   Veryclearly,theformofproductionseenintheseindustrialdistrictsrequiresahigh  degreeofcooperationbetweenfirms.Formalcontractsarerelativelyrare;instead,  subcontractingrelationsdependonwordofmouthagreements.Finalfirmsmayneedto ` respondquicklytoshiftsoffashioninthefootwearandclothingindustries,ortomodify 8  specificationsontheflyforcustomersinthecapitalmachinerysector.Yetthisalsoposesa  ` puzzle,asthereissubstantialpotentialforopportunisticbehaviourinsuchrelations,even  8  morethaninstandardcontractualrelationshipsbetweenfirms.Onthefaceofit,   subcontractorscouldholdfinalfirmstoransom,usingthethreatof holduptorenegotiate   informalagreementsintheirfavour.Thisisperhapsthemainreasonwhythe new p institutionaleconomicsofWilliamsonandhiscolleaguesemphasizes hierarchyorvertical H integrationasasolutiontoproblemsofpotentialopportunism.Fh #  23      ׀Intheirview,itusually  p makessenseforafirmwhichishighlydependentononeormoreofitssuppliers,tobuythese H suppliersandintegratethem,ratherthanruntheriskofblackmail.YetItalianindustrial   districtshavetraditionallyinvolvedanextremelyhighdecentralizationofproductionwhich  appearstohaveworkedquitewell;indeed,ithashelpedItalianfirmsbecomemore  competitivethantheirrivalsinmanyfieldsofproduction.Itisclearthatdecentralisationof X  thissortisinconceivablewithoutcooperation,inthesensethatsubcontractorsdonottake 0"  advantageofthefinalfirms.G #  24       $X"   Notonlymaysubcontractorsbehaveopportunisticallytowardsfinalfirmsinthisform %0!$ oforganisation,butfinalfirmsmaybehaveopportunisticallytowardstheirsubcontractors.  Theproductionofbespokemachineryrequiresaveryhighdegreeofflexibilityfrom  subcontractors,bothintermsoftheirwillingnesstoacceptchangesinspecifications,and ` theirwillingnesstoworklonghoursandweekendsatshortnoticeinordertocompletea 8  commission.Intheshortterm,thismayinvolvesubstantialcostsforasubcontractor,costs  ` outweighingthepricethatasubcontractorreceivesforaparticularorder.Whilethesecosts  8  maybecompensatedforbyfutureordersinalongtermrelationship,thereisnonecessary   reasonwhyafinalfirmshouldnotpocketthegainsitmakesfromasubcontractors   flexibility,withoutmakinganylongtermcommitments.Afterall,itisundernocontractual p obligationnottodoso. H   Theevidencesuggeststhattheserisksofopportunismonbothsideshavebeen  p overcomewithoutresorttocontract,incontrasttoothereconomiccontexts,wheresuch H extensivecooperationonthebasisofdiffuserelationshipsisrelativelyrare.Itseemsplausible   atfirstglancethatthislackofopportunismincooperativerelationsistheresultoftrust(or  morepreciselytrustworthiness)ofsomekindbetweensubcontractorsandfinalfirms.Indeed,  scholarsworkingonindustrialdistrictshavecometoabroadconsensusthattrustbetween X   economicactorsplaysacrucialroleintheeconomicsuccessofindustrialdistricts._ H #  25      _ ԀWitha 0"  fewimportantexceptionshowever,_ I #  26      _ Ԁauthorshavetendedtoidentifythistrustasbeing   specificallynonrationalinorigin.Itistypicallyattributedtopreexistinghistoryandshared  socialidentity,ortothecreationofnewformsofcommonidentity,ratherthantointerests. ` Muchofthishostilitytorationalchoiceaccountsoftrustandcooperationinindustrial 8  districtsisfoundedonthe(correct)perceptionthatstandardneoclassicaleconomicshaslittle  ` tooffertotheirstudy.Butmorerecentworkinnoncooperativegametheoryhasclear  8  relevance,asexampledbytheworkofMichaelTaylorandothersoncommunity,_ L, #  27      _ Ԁ_ Bengt_    _ Holmstrm_ ԀandJohnRoberts,andGaryMilleroncooperationbetweenandwithinfirms,_ M  #  28      _    and_ Avner_ Ԁ_ Greif_ Ԁandothersoncooperationandinformalenforcement._ N #  29      _ ԀMostpertinently p perhaps,thereisextensiveevidencethatcooperationintheseindustrialdistrictsisstrongly H linkedtoinstitutionsofasortwhichareamenabletorationalchoiceanalysis,intheformof  p informalruleswhichgovernthebehaviourofactors.Marco_ Bellandi_ ,forexample,discusses H theimportanceof localruleswhichrestrictthemostharmfulformsofrivalrywithinthese  districts._ O #  30      _ ԀMoreexplicitly,_ Sebastiano_ Ԁ_ Brusco_ Ԁspeaksofhowinindustrialdistricts  0  swindlesandfraudsareparticularlyrareandthisalsohelpstoreduceoverall L  transactioncosts...Thisratherspecialclimateisaresultofthefactthat,alongside 8  stateregulations,thereisasecondsetofrulesthatderivesfromthecommunityto $ t whichallthecompaniesbelong.Thissetofrules,sharedbyeveryoneandtowhich  ` everyonehastoadapt,originatesincivilsociety,andalsocarriesaseriesofsanctions:  L  whoeverbreakstherulesofthegameisexcludedfromthecommunityandcanno  8  longerworkwithit._ P #  31      _ $ "" ComparethiswithKnightsdefinitionofasocialinstitution   QXXXXUSUK.,0  Socialinstitutionsaresetsofrulesthatstructuresocialinteractionsinparticularways. \ Theserules(1)provideinformationabouthowpeopleareexpectedtoactinparticular H situations,(2)canberecognizedbythosewhoaremembersoftherelevantgroupas 4 therulestowhichothersconforminthesesituations,and(3)structurethestrategic  p choicesofactorsinsuchawayastoproduceequilibriumoutcomes._ S  #  32      _ #XXXQXΤ#UK.,US., \"" ЇItshouldbeimmediatelyapparentthat_ Brusco_ scommunityrulessatisfyKnightsdefinition,  andarefurthermoreaccompaniedbysanctionssufficienttosecurethecooperationofactors t eveniftheyareonlymotivatedbytheirparticularinterest. L    Furtherevidenceoftheexistenceofcommunityrulesinindustrialdistrictsmaybe $ t foundinresearchfindingsfromthepackagingmachinerydistrictofBologna._ UT #  33      _ ԀAs_ Brusco_   L  wouldhavepredicted,therewasevidenceofawidespreadsetofinformalunderstandings $  governingbusinesspracticeinrelationshipsbetweenfirms.Theseunderstandings   underpinnedeconomicrelationsbetweenfinalfirmsandsubcontractors,whichthose   subcontractorsdescribedintermsofpersonalrelationshipsandreciprocaltrust.Yetthese \ relationshipsandthistrustreliedinthefinalanalysisonthepresenceofinformalinstitutions 4 whichexistedtopunishdefaulters.RT #  34      ׀Theserulesstipulatedhonestyinpersonaldealings  \ betweenbusinessactors.Whiletherewasrelativelylittlerelianceonformalcontractsin 4 subcontractingrelationships,informalrulesandsanctionsexistedsothatdishonest_ behavior_    ofmanysortswasunprofitable.Thiswasmostclearlydescribedbyonefirmowner,when  askedwhyopportunismwasnotrifegiventhatfirmsnevertookeachothertocourt(hehad  previouslystatedthatlegalactionwasalmostunheardof).Inhiswords,afirmwhichdoes  notcooperate, ` 0  JXXXXcomestobeexcludedfromthesystem.Slowly,onedoesnothavecredibilityany $ t more,whichallowsonetoremaininthesystem.Theworldofpackagingisverysmall  ` Єevenifitisbigitisverysmall.Itisthusthatitis,therearemanypersonalrelations  L  thatservealsosometimestoavoidsituationswhich...donothavetobesolved  8  throughlegalmeans.Hewhodoesntkeeptothisrulethesearentwrittenrules $  wellthereyouare!{_ beh_ !}_ T #  35      _ #XXXJX2# "" Furthermore,asetofunderstandingshadarisenonthebasisoftheserules,whereby   subcontractorsremainedhonest,andundertooktoprovideflexibility,inreturnforthe \ guaranteeofworkinthelongterm.VT #  36      ׀ 4   Thus,insummation,thereisevidencetosuggestthattrustandcooperationinItalian  \ industrialdistrictsreliesonthepresenceofinformalcommunityinstitutions.Furthermore, 4 recentrationalchoiceworkonthetheoryofinstitutionsappearstoofferagoodframeworkin   whichbothourownworkonItalianindustrialdistrictsandtheworkofotherscanbe  situated._ # #  37      _ Ԁ l  D! Section3:InstitutionalEvolutionandChangesinTrustandCooperation    Theevidencediscussedabove,eventhoughitstronglyindicatesthatthereisan ` importantrelationshipbetweeninformalinstitutionsandtrustworthiness,trustand 8  cooperationinItalianindustrialdistricts,onlytellshalfofthestory.Inthissectionofthe  ` paper,wewishtodiscusswhetherthereisevidencenotonlythatinstitutionsaffecttrust,but  8  thatinstitutionalchangemightbeanimportantcausalfactorintheexplanationofchangesin   cooperation,and(byimplication)trustandtrustworthiness.Inordertoevaluate_ this,we_ Ԁreturn   tothediscussioninsection2,wherewesuggestedthatdistributionalbattlesbetweenactors p andasymmetriesofpowermightbeimportantcausalfactorsinexplaininginstitutional H change.  p   Interestbasedtheoriesofinstitutionalchangehavetraditionallyreceivedshortshrift H inthestudyofindustrialdistricts.Whilearecentwaveofliteraturehasstudiedchangein   industrialdistricts,ithastypicallyeithertreatedthischangeascollectiveadaptationtonew  exigencies,_ W #  38      _ Ԁorarationalisationprocessafter_ Tnnies_ ԀorWeberinwhich_ Gemeinschaft_ is  replacedby_ Gesellschaft_ ._ X #  39      _ ԀTheimplicationwouldseemtobethatchangeisaconsequence X  eitherofmutuallyagreedadaptationorofineluctablesocialprocesses.Yetthereisevidence 0"  thatbothchangeandstabilityinindustrialdistrictsmayoftenbeattributedtostrategic  interactionamongselfinterestedactors.Onemaytake,forexample,changeinthefamous  knitweardistrictof_ Carpi_ ._ Z #  40      _ ԀLikemanydistrictsinEmiliaRomagna,_ Carpi_ Ԁhasalocalbranch ` oftheregionaldevelopmentcorporation,_ ERVET_ ,whichseekstointroducenew 8  technologies;oneofitsprojects,adesignsystemcalled_ Citera_ ,hasreceivedconsiderable  ` attentioninthepolicyliteratureasanexampleofsuccessfulcollectiveadaptationtochanging  8  marketconditions._ [, #  41      _ ԀInfact,eventhough_ Citera_ shouldhavebeenuncontroversialit   introducedefficienciesforonegroupofactors(finalfirms)withoutmateriallyharmingothers   Єitsintroductionto_ Carpi_ Ԁcausedmajorpoliticalbattles.Inthewordsofanacademicobserver p whowasthenontheboardoftherelevantlocaldevelopmentbody,thiswas H QXXXXUSUK.,0  [_ b]ecause_ Ԁthisproject...waschangingthepowerrelationswithinthedistrict.Itwas  \ giving...moreeffectivetoolstothosewhowerecontrollingthedesigningprocess, H andmakingtheroleofthestandardmanufacturers,ofthe_ terzisti_ [subcontractors]less 4 relevant,...[theyhad]lowerabilitytoconstraintheotherones#XXXQXs#UK.,US.,.\ #  42      ׀""   Thesystemwasonlysuccessfullyintroducedafterthe_ terzisti_ hadbeenboughtoff t withinitiativesthatshoreduptheirownposition.Thesestrugglestookplaceinthecontextof L  asingle,althoughveryimportant,projectwithinoneindustrialdistrict.Yetthereisevidence $ t ofchangeonawiderscale.RecentresearchfindingssuggestthatindustrialdistrictsinItaly  L  areseeingageneralshiftintheirmodeofinternalorganisation._ ]| #  43      _ ԀInparticular,largerfirms,or $  consortiaoflargefirms,appeartobeenjoyinganevermoredominantroleinmany,perhaps   mostdistricts.Knightstheorywouldsuggestthatthegrowingdominanceoflargefirmswill   leadoverthemediumtermtoinstitutionalchangetiltingdistributionaloutcomesinfavourof \ thesefirms.Andindeedthereissomeevidencetosuggestthatsuchachangeisoccurring,in 4 atleastoneindustrialdistrict,thepackagingmachinerydistrictinBolognathatwehave  \ mentionedintheprevioussection. 4   Bologna,thecapitalofEmiliaRomagna,isattheheartofItalyspackagingmachinery   industry;firmsinEmiliaRomagna,whichareconcentratedintheBolognaarea,accountfor  some70%oftotalItalianemploymentinthesector.Theclusterisrelativelyrecentinorigins; l beforeWorldWarIItherewereonlytwolocalcompaniesinthesector._ ^ #  44      _ ԀAftertheWar, D! productionexpandedrapidly:thesetwofirms,andathirdwhichhadenteredaftertheWar, #l! gavebirthtoahostofnewerfirms,astechnicianslefttostartuptheirownbusinesses.The  industrysawcontinuedexpansionduringthe1950'sand1960's.The_ autunno_ Ԁ_ caldo_ of  industrialunrestattheendofthe1960swasresponsibleforamajorshiftinproductioninthe ` industry,asfinalfirmsbeganto_ outsource_ Ԁevermoreoftheirworktosubcontractors.This 8  resultedinanenormousexpansioninthenumberofsmallerfirmsintheindustryduringthe  ` 1970's(seefig2).  8     ̀Thesesubcontractorsweretypically_ artisanal_ Ԁproducerswithonlyafewemployees;mostof H themremainquitesmall,althoughafewnowhavefiftyormoretechniciansworkingfor  p them. H   AsinotherItalianindustrialdistricts,mostfinalfirms_ outsource_ Ԁthemajorityof   productiontosmallersubcontractors.Afinalfirmwillreceiveanorderforamachine;itwill  thendrawupplansanddelegatetheproductionofeachindividualcomponenttoa  subcontractor;othersubcontractorsmayassemblecomponentsintomechanismsorprocess X  themfurtherinotherways,andthenreturnthemtothefinalfirm,whichwillassemblethe 0"  machine.Itshouldbenotedthatthestageofassemblyismorestrategicthanitsounds,and $X" thatfinalfirmsusually(althoughnotalways)keepcontrolofit.Furthermore,acoupleofthe %0!$ verylargestfirmsinthedistrictretainasubstantialamountofinhouseproduction,although '#& theytoousesubcontractorstoprovideflexibility;onelargefirminthedistrictoutsourced )$( some70%oftheproductionprocessduringaperiodofrapidexpansioninthe1990's.These h+&* provisoesstated,thedegreeofdelegationintheproductionprocessisextraordinary,andruns @-(, countertomanyofthetenetsof_ Williamsonian_ Ԁtransactioncosteconomics.Asnotedinthe /h*. previoussection,intervieweesinfinalfirmstypicallytalkedoftheirrelationshipswiththeir  subcontractorsinthelanguageofpersonalrelationshipsandreciprocity.Itseemsunlikelythat  theserelationshipswerepersonalinthesensethattheyinvolvedstrongaffective ` commitments;_ s #  45      _ Ԁafirmmighthavearelationshipwithhundredsofsubcontractors.These 8  personalrelationshipsseemedtorelyinthefinalanalysisoninformalrulesaboutwhatwas,  ` orwasnot,acceptablebehaviourbetweenfirms.  8    Thereisevidencethattheseruleswererootedinaroughequalitybetweenfinalfirms   andsubcontractors,andthataspowerrelationsareshifting,sotooaremutualexpectations,   possiblydestabilisingthefoundationsforthekindsoftrustandcooperationthatstill p characteriserelationshipsbetweensmallerfinalfirmsandsubcontractors.AsKnightsuggests, H oneusefulwaytoconceptualizebargainingpoweristolookatthebreakdownvalues,andin  p particularatthealternativesthatpartiesinabargainingsituationmighthaveifagreementis H notreached.Ifbothsideshaveawidevarietyofattractivealternativesopentothem,then   thereareunlikelytobesubstantialdisparitiesinbargainingweight:neitherwillbeina  positionofvulnerability.Thus,therangeofpossiblealternativesoffersaroughindexof  powerrelations. X    Aswehavealreadymentioned,theBolognapackagingmachineryclusterhadits 0"  beginninginthelate1940's,inasituationofrapidlyexpandingmarkets.Entrycostswere $X" verylow,allowingindividualtechnicianstosetuptheirownfirmswithahighprobabilityof %0!$ success.Asecond,quitedifferent,waveofsmallfirmcreationbeganintheearly1970's. '#& Here,theimpetuswastheintroductionofrestrictivelabourpractices,whichencouragedfirms )$( toputworkoutratherthanhandlingitinternallythroughhiringnewworkers.This  encouragedthecreationofsmallsubcontractingfirms,someofwhichlaterwentonto  becomefinalproducersintheirownright. `   Evidencesuggeststhatbothhorizontalrelationshipsofcooperationbetweenpeer 8  firms,andverticalsubcontractingrelationshipsbetweenfinalfirmsandtheirsubcontractors  ` wererelativelyegalitarianuntiltherecentpast.Thiswaspredicatedonaroughequalityof  8  powerbetweenfirms,whichinturnrestedontwofoundations.Thefirstwasthenatureofthe   externalmarket.Rapidlyrisingdemandforpackagingmachinesinawidevarietyofmarkets   meantthatitwasimpossibleforanysinglefirmorgroupoffirmstodominate:whenfirms p feltthattheywerecomingundertoomuchpressurefromacompetitorintheircurrentmarket H segment,theycouldrelativelyeasilyrefitthemselvesfornewones.Thesecondcondition  p dependedonthefirst;itwastherelativeproliferationofsmallfirmsproducingforfinal H markets.Thisallowedforaroughequalitybetweensubcontractorsandtheirbuyerfirms:   subcontractorshadthechoiceofdealingwithawidevarietyofbuyerfirms,andbuyerfirms  hadthechoiceofaconsiderablevarietyofsubcontractors.Inshort,theconditionswere  similartothosewhichKnightidentifiesasunderlyingtheefficiencyachievingcontractmodel X  ofinstitutionalevolution.Allactorsinthepackagingmachineclusterhadaconsiderable 0"  rangeofalternativesopentothem,whichprecludedsubstantialasymmetriesinpowerfrom $X" emerging.Thus,theinstitutionswhichemergeddidnotmarkedlyprivilegeonesetofactors %0!$ overanother:bothsubcontractorsandfinalfirmssharedinthebenefitsofanexpanding '#& market.Cooperationwastwosided:whilesubcontractorsdidnotusuallybehave )$( opportunistically,andprovidedahighdegreeofflexibilitywhenfinalfirmsneededit,final h+&* firmsfortheirpartgaveinformalguaranteesofsteadyworkoverthelongerrun,andprovided @-(, areasonableshareoftheproceeds. /h*.   Thereisgoodevidencethatthissituationischanging.Asinotherindustrialdistricts,  large groupfirmsareemergingasanimportant,andperhapsdominantformof  organisation.Thesegroupsseektoprovideintegratedrangesofmachineswithinaparticular ` sector,andsometimesinmorethanonesector. #  46      ׀Thisprocesswasoriginallydrivenbya 8  searchforeconomiesofscale;_T #  47      ׀itappearsnowtobemoredrivenbydemandmarkets;large  ` integratedcustomerfirmsprefertodealwithasingle,integratedsupplier,ratherthanwitha  8  varietyofsupplierfirms.Previously,acustomermightdealwithavarietyofdifferent   specialisedfirms,eachofwhichproducedonespecifickindofmachineforaproductionline   say,inthepharmaceuticalindustry,amachinefordosinggelatinecapsuleswithdrugs,ora p machineforpackagingcapsulesintoblisterpacks.Now,majorcustomerstendtopreferto H dealwithonlyonefirm,apreferencewhichhasledtoasubstantialshiftofpowertowards  p largerfirms,andanongoingprocessofhorizontalintegration.Inthewordsofone H interviewee,   0  themarketreactsbettercertainlytoawellintegratedrangeofproducts,ratherthanto  amainsupplierwithsubsuppliers.Itisnotseenasreliablethesupplydonebyyour  mainsupplierwithsubsuppliers.l"" Previously,alargefirmmightworktogetherwithseveralsmallerfirms,whichproduced 0"  specialisedmachinesthatcomplementeditsrange.Thisisbecominglessandlesscommonas $X" suchfirmsareeitherbeingboughtbylargerfirms,orfindingtheirnichesdisappearing.This %0!$ isallthemoremarkedbecauseofchangesincustomerrequirements.Increasingly,large '#& customerfirmsdonotasksimplyformachines,butforabroadarrayofservicesrelatingto  thesemachines,ofasortwhichsmallerfirmswouldhavedifficultyinproducing.Somelarge  firmsintheareaareseekingtoreinventthemselves,providingacomplete turnkeyservice ` totheircustomers,andperhapseventuallyactuallytakingoverpartsofthesecustomers 8  manufacturingprocessesforthem.Relationshipsbetweenmachineproducersandtheirfinal  ` customersappeartobegettingcloserandcloser,withknockonconsequencesforlargefirm  8  strategies.   0  The[customer]firms,inpharmaceuticals,foodetc,donotwantanymoretohave   engineeringofficesinternallyandthushighcosts,andtheyturnoutsidetoexpert p peoplewhoareabletodoeverything.Consideringthatthisdoesntexist,slowlythe \ biggerfirms,whichhavetheeconomicpossibilities,tendtoacquireonthemarket H thosemachinesthattheylack,orthefirmsthattheylackfortheirchain.4"" And,inthewordsofoneofthelargefirmswhichhasbeenmostactiveinseekingtobuy H smallerfirms.   0  alotofcompaniesareaskingnowjusttohaveonesupplierforthecompletelineof  thecompletefactory.Sotheyforceyoutocreateapoolofdifferentsuppliersinorder  tointerfacethemwithjustoneperson,oneface.Sothereasonfortheconcentrationis l alsobecauseourcustomersarepushingustoconcentrate.X "" 2B  Thus,smaller,specialisedfirmsintheareahaveincreasinglybeenboughtoutby #l! largerones.Furthermore,thosesmallerfirmsthatremainindependentarefindingit $D # increasinglydifficulttogainaccesstocustomers.Somesmallfirmsareseekingnewmarkets &"% inthedevelopingworld,wherecustomersarelikelytobelesstechnicallydemanding,and (#' alsolessinsistentonhavingasinglesupplier.However,itisfarmoredifficultforsmallfirms |*%) tofindnewmarketnichesthantwentyorthirtyyearsago;thepackagingmachineindustryis T,'+ nolongerexpandingexponentially,andshowsincreasingsignsofbeingamatureindustry. ,.|)- V  AllofthismeansthattheBolognapackagingmachineindustryiscomingtobe  dominatedbyafewlarge groupfirms,withclose,longrunrelationswithcustomers,from  whichother,smallerfirmsaregraduallybeingexcluded.Theresultisanincreasingdegreeof ` hierarchyinthepackagingmachinecluster.Largefirmsdominatemoreandmore.Some 8  highlysuccessfulsmallfirmsstillproducefornicheswhichareunattractiveforonereasonor  ` anothertolargerfirms,butverymanynowfacetheunpalatablechoiceofintegratingtheir  8  operationswithlargerfirms(beingboughtoutorbecomingadependentsubcontractor)or   goingoutofbusiness.Asthemanagingdirectorofoneofthelargestfirmsinthedistrictputs   it, p 0  inthisfieldweexistreally,whenwehavethecontrolofthefinalcustomer.In 4 manufacturingofindustrialorcapitalequipmentlikethis,ifyoumanufacturecapital  p equipmentyouhavegottohavethegriponthecustomeryourself.Whatyoucouldsay  \ isthatthereisaspaceforasmallcompany,buttheywillsupplymostlythroughthe H salesorganisationsoflargercompanies.Thatmeanstheyarenothing,theycanbe 4 purchasedeasily,ordestroyedoreliminated.Becausethemarkethereisnotforthis   machine,itisforthesecustomers,andifyoudonthavethesecustomers,youdont   exist.Youhavegottohavethesecustomerstoexist."" BThus,therelativeequalitywhichusedtoexistbetweenfinalproducersnolongerapplies. l Larger groupfirmsareincreasinglyabletoblockothersfromgainingdirectaccessto D! customers.Thisincreasinglyallowsthemtodictatetermstosmallerfinalfirms,whichthey #l! cantakeover,ortreatasdependentsuppliers,or,ifnecessary,eliminate. $D #   Smallerfinalfirmsinthepackagingmachineindustryarehighlyawareofthis &"% problem,andhavesoughttorespondtoit.Onepossibleanswerhasbeentoincrease (#' cooperationamongeachother,formingloosegroupingsoffirmswhichseektopresenta |*%) commonfacetocustomersoninternationalmarkets.Thishasbeenhelpedbytheexistenceof T,'+ smallfirmsinthedistrictwhichspecialiseinorganizingsalesabroad,andworkon ,.|)- commission.However,sucheffortsfaceboththeusualdifficultiesofcollectiveaction,_ k #  48      _ Ԁand  afundamentalunwillingnessonthepartofsmallfirmownerstocompromisetheir  independencethroughcooperation.Giventhelockthatlargerfirmshaveonimportant ` customers,onesympatheticobserverbelievesthatsmallfirmsintheareawillface huge 8  difficultyinsustainingtheirposition.  `   Thishasknockoneffectsforrelationshipsbetweenfinalproducersand  8  subcontractors.Previously,subcontractorsmighthaveawiderangeofbuyerfirmstochoose   from.Now,theiroptionsappeartobenarrowingmoreandmore,assmallerfinalfirmsinthe   districtareboughtupbylarger groupfirms.Whilesubcontractorshavelessbuyerfirmsto p choosefrom,theoppositeisnottrue;largebuyerfirmsfaceaveritableprofusionofsmall H subcontractors,whichincreasestheirabilitytowinfavourabletermsfromthem.Asdescribed  p byalocalbusinessassociationofficial, H QXXXX0  Itisobviousthatthebigfirmhastheabilitytoplayaround,becausetherearetoo   many[subcontractors]todayfortheneedsofthemarket.Ifonemakesacontracton  themarket,supplyisgreaterthandemand.#XXXQX#""   Thelargerfirmsintheareahaveincreasinglysoughttomaketheirrelationshipswiththeir X  subcontractorsmoreformaland armslengththantheyhadbeenpreviously.Inpart,thishas 0"  beenaccomplishedthroughmakingsubcontractorrelationsquasihierarchical.Incontrastto $X" traditionalpracticeinthedistrict,wherefinalfirmsinteractdirectlywithalargenumberof %0!$ subcontractingfirms,thelargerfirmsofthedistrictarenowincreasinglyseekingtodevelopa '#& smallnumberofsubcontractorsas subsuppliers.Thesesubsuppliersmanage )$( subcontractingrelationsonbehalfofthefinalfirmsothatthelargefirm,likeJapanese  manufacturers,isattheapexofaverticallyoriented Christmastreeofsupplierrelations.  Increasingly,thepackagingmachineindustryinBolognaisbeingdominatedbywhatCrouch ` and_ Trigilia_ Ԁcall networkedfirmsratherthan networksoffirms._  #  49      _  8    Clearly,thissystemstillallowssomeformsofcooperationbetweensubcontractors  ` andbuyerfirmstotakeplace.Equallyclearly,theseformsofcooperationarelikelytobeless  8  egalitarian,andinvolvegreaterdistributionalgainsforthebuyerfirmthantheprevious   dispensation.Indeed,thecreationofthismoreverticallyintegratedsystemisconditionedon   changesintheoptionsavailableto,andthusthepowerrelationsbetween,differentfirms.The p lockwhichbigfirmshaveontheirfinalcustomersallowsthemtobesurethattheyarenot H buildinguppotentialcompetitorsby_ focusing_ Ԁtheirattentionsandresourcesonsubsuppliers.  p Asthepreviouslyquotedmanagingdirectordescribesit; H 0  WhocouldbepossiblyscaredofasubsupplieracquiringsomecompetenceifIhold   thecustomers?Afterall,Ihavethecustomers.Hemaylearntomakeamachine;he  doesnotknowhowtoconceiveamachine,hecannotdesignamachinehimself.He  maycopymymachine;andthentowhomshallhesellit?"" Insomecases,relationsbetweenlargefirmsandtheirsubcontractorsvergeonexploitation. D! Anotherlargefirminthedistricthassoughttodevelopafewofitssubcontractorstoahigher #l! technicalstandard,helpingtheminthepurchaseofnewmachinery.However,thishashad $D # considerablecostsforthesubcontractorsinquestion.Whiletheyarehighlydependentonthe &"% buyerfirm,whichaccountsforaround80%oftheirturnover,theyhavetosignuptoterms (#' whichare veryfavourabletothebuyerfirm,andhavenoguaranteeoffutureworkor |*%) income.Asaseniormanagerinthelargefirmdescribesit  0  Weaskforalotofflexibilityfromoursuppliers!Thatisthemainconcerntheyhave t normally.Theydontliketobetreatedinthatway,becauseforusitisdifficultto ` predictwhatistheworkloadthatwewouldpasstooursuppliers.Sonormallyour L  projectionisalwaysprettywrong.Butontheotherside,forthemwearevery 8  important.Sotheyjustcomplain.$ t"" Thisisquitedifferentfromthetraditionaldispensation,inwhichbothfinalfirmand  8  subcontractorsharedriskstoamuchgreaterextent.     Thus,thereisevidencethatstronglysuggeststhatimportantchangesaretakingplace   intheBolognapackagingmachineindustrialdistrict.Inanearlierhistoricalconjuncture,final p firmsenjoyedaroughparityinrelationsamongeachother,andrelationshipsbetweenthese H firmsandtheirsubcontractorswererelativelyegalitarian.Allfirmshadaconsiderablevariety  p ofoptionswhichtheycouldpursueintheirrelationswithotherfirmsinthelocality.Now, H thisisnolongerthecase.Largefirmsareincreasinglyengagedinexclusiverelationshipswith   importantfinalcustomers,andareabletodenymarketopportunitiestosmallerones.Further,  theyhavebeenengagedinapolicyofbuyingsmallerfirmsandintegratingthemintogroups.  Thishashadconsequencesfortherelationshipsbetweenfinalfirmsandsubcontractors;the X  latternowhavefeweralternativechoicesshouldarelationshipwithaparticularfinalfirm 0"  breakdown.Asaresult,subcontractorsarebecomingmoredependentontheirfinalfirms, $X" andhavetoacceptarrangementswhichsplitthebenefitsofcooperationinaquiteuneven %0!$ fashion.AsKnightsuggests,differencesintherangeofalternativesavailableinthecaseof '#& breakdownseemtotranslateintodifferencesinthepowerofactorstorealisedistributional )$( outcomesthatfavourtheirparticularinterests,sothatthereisevidencethatlargerfirmshave h+&* soughttotakeadvantageoftheirpowerfulpositiontorestructurer_ elationships_ Ԁbothwith @-(, smallerfinalfirms,andwithsubcontractors. /h*.   Thiscanbeinterpretedasevidenceofanimportantmechanismofinstitutional  change,whichislikelytohaveaknockonimpactontheinformalinstitutionsunderlying  trustandcooperationthatwehavepreviouslydescribed.Overtime,thechangesinthe ` relativepoweroffinalfirms(largerfinalfirmsinparticular)andsubcontractorsislikelyto 8  leadtochangesinexpectationsovertheformsofcooperationthatcanbeexpected.Thisisall  ` themoresoif,asmanyobserverspredict,concentrationandthepoweroffourorfive  8  dominant groupfirms,increasesubstantiallyoverthenextseveralyears.Ifthese   predictionsturnouttobecorrect,onemayreasonablyexpectthatthemorehierarchicaland   lessegalitariansortsofcooperationinsidesubcontractingrelationsthatwehavedescribed p willcometodominateoverthemorediffusesortsofcooperation,basedonlocal,informal H institutions,thatwerepreviouslyextant.Insofarassubcontractorsoptionsinthecaseof  p breakdowndiminish,andlargerfirmsoptionsremainstaticorincrease,thenlargefirmswill H finditlessnecessarytooffercooperationtosubcontractors(intheformofinformal   guaranteesofworkoveranextendedperiodoftime).Thesechangesinexpectationsmaybe  expectedtohaveknockoneffectsoninformalinstitutions,eitherrenderingthemredundant,  or,potentiallyleadingthemtochangesothattheyleadtolessegalitarianformsof X  cooperation. 0"    Here,onecanturntotheexampleofJapanesecontractingpractices,wherethereis $X" alsoevidenceofinformalinstitutionsaffectingsubcontractingrelations,butinarather %0!$ differentway.Japanesesubcontractingpracticesinvolvelongtermhierarchicalrelations '#& betweenfinalfirmandsupplier,whichprovidesacontextforcooperation,butofasortwhich )$( redoundsmoretothebenefitofthepowerfulfinalfirmthanthedependentsupplier.Ronald h+&* _ Dore_ ,inafamousarticle,speaksofhowverticalrelationsamongJapanesefirmsis @-(, characterisedbyinformalinstitutionsmandatinga goodwillbetweenfirmsandtheir /h*. supplierswhichisuncommonintheAngloSaxonworld.However,theexpectationsof  cooperationimpliedbythisareratheruneven;subcontractorsareexpectedtoshow  substantiallymoregoodwilltotheirbuyerfirmsthanviceversa._ m #  50      _ Ԁ `   Finally,itisplausiblethatthemechanismidentifiedintheBolognacasestudy 8  operatesinotherindustrialdistricts.Aswehavementioned,thereseemstobeageneraltrend  ` withinindustrialdistrictstowardslargerfirmsassuminganincreasinglydominantrole.nT #  51      ׀In  8  somedistricts,factorsthatarenotofmajorimportanceintheBolognapackagingmachine   districtmayincreasethebargainingweightoflargefirmsinotherdistrictsstillfurther.For   example,certainphasesofproductionarebeingsubcontractedouttodistantgeographic p locationsinmanydistricts:thisislikelytoincreasethebargainingstrengthoflargefirmsvis H avisthoselocalsubcontractorswhoremain.ToquoteNicolaBelliniagain;  p 9QXXXXUSUK.,0  The_ Marshallian_ Ԁ[i.e.traditionalconceptionofthe]districtisadistrictwherepower 4 relationsaresuchthatnooneisreallythebigpowereventhe_ impannatore_ ԀinPrato   isastrategic_ organiser_ Ԁinthesystemwhichisnotsopowerful,nothierarchically   differentfromtheothercompanies,partofthecommunity.Andthisiswhatis  changinginthedistricts.Insomedistrictsithaschangeddramatically,veryclearly,  [suchas]_ Sassuolo_ Ԁand_ Biella_ .#XXXQX9#UK.,US.,9 #  52      "" 9However,theextenttowhichpowerasymmetriesbetweenactorsleadtoinstitutionalchange D!  mayalsobeaffectedbyotherfactors;forexample,localgovernmentshavesoughttobolster #l! smallerfirmsinsomedistricts,leadingtovariationsinoutcomeacrossdifferentcontexts.u #  53      ׀In   short,thereappearstobeagrowingasymmetryinpowerrelationsinotherdistrictsthan  packagingmachinerymanufactureinBologna,andthisishavingimportantconsequencesfor ` theorganisationofproductioninthesedistricts. 8  Conclusions  8    Inthispaper,wehavesuggestedthatmuchofthecurrentliteratureonsocialcapital   hasshallowmicrofoundations.wehaveproposedanalternativemodel,whichprivilegesthe p effectsofinstitutionsontrustandtrustworthiness.Aswehavesuggested,thismodeloffers H certainintellectualadvantagesoverthesocialcapitalhypothesis.Ithasrelativelyclearlines  p ofcausation.Furthermore,itcanbelinkedtotheoriesofinstitutionalevolution,andthusoffer H anaccountofhowtrustandtrustworthinessmaychangeovertime.     Itshouldbenotedthatthismodeldoesnotsufficientlyelaboratethefeedbackloops  thatfrequentlycharacteriseargumentsabouttrustcreation.Thereisaclearbreakbetweenthe  motorforcesguidinginstitutionalevolution(strugglesoverdistributiveoutcomes)andthe X  consequencesintermsoftrustandcooperation.Thismeansthatthemodelmaynotcapture 0"  certainofthedynamicsoftrustcreation:as_ Hardin_ Ԁargues,functionalistaccountsofthe $X" spreadoftrustworthinessandtrustmayhavesomevalueinexplainingchange.xT #  54      ׀Furthermore, %0!$ itonlybeginstoincorporatelearningeffects:thesetoomayaffectwhethertrustand  trustworthinessareextendedintodifferentareas.    Nevertheless,themodelappearstofitwellwithempiricalobservationsfrom ` industrialdistricts.Thesedistrictshavebeenpresentedasevidencesupportingthesocial 8  capital hypothesisthatcivic_ associationalism_ Ԁisamajorsourceofeconomicandpolitical  ` success.Yettrustandcooperationinthesedistrictsseemmorereadilyexplainedbyan  8  accountthatemphasisesinstitutionaleffects,thanbythemorediffuseargumentsofadvocates   ofsocialcapital.Reciprocityandnetworkeffectscanbetterbetreatedastheconsequenceof   specificinstitutionalconstellationsthanasindependentcausalfactorsintheirownright. p Cooperationinindustrialdistrictsappearstorestoncommunityruleswhichcorrespondin H theirmainfeatureswiththerationalchoicedefinitionsofinformalinstitutionsadvancedby  p Knightandothers. H   Further,thereisevidence,aswehavesuggestedofacausalmechanismfor   institutionalchangethatrestsonchangingpowerrelationsbetweenactors.Thisevidenceis  notdefinitive,butisnonethelesshighlysuggestive:cooperativepracticesarebeingaffected  bychangesintherelativebargainingweightofactorsinamannerthatislikelytohave X  knockoneffectsforpreviouslyexistinginstitutions.Itisdifficultintheextremetoimagine 0"  thattheseinstitutionscansurviveintheirpresentformifasymmetricalformsofcooperation $X" cometobethenorm,asseemslikely.Insofarassubcontractorsareforcedintheirbargaining %0!$ withfinalfirmstoprovideahighdegreeofflexibility,withoutaguaranteeofworkoverthe '#& longruninreturn,theirexpectationswillchange,inamannerwhichmaycometoaffect )$( institutionalrules,andfinallyresultinanewcooperativeequilibrium.Thus,an institutional h+&* modeloftrust,trustworthinessandcooperationappearstoprovideagoodaccountbothof @-(, cooperationbetweenactors,andtheevolutionofthiscooperationovertime,inrelations /h*. betweeneconomicactors.Indeed,itappearstoprovideabetteraccountoftrustinindustrial  districts,oneofthemainplanksofevidenceinsupportofthesocialcapitalargument,than  thetheoryofsocialcapitalitself. `   8  mle9)%`|0& `T$qE % %d %m ""                ""Figure1  0"  mlb9)%`|0% `.<E<  mm """" """"Figure2NumberoffirmsinmechanicalengineeringintheprovinceofBologna.Source: H CompiledbyHenryFarrell_ from_ Ԁ_ ISTAT_ ԀIndustrialCensusdata1971,1981,1991,1996.          ?+ ` hp x X?