Efficiency and Social Institutions: Uses and Misuses of Economic Reasoning in Sociology

We review recent applications of the “new institutional economics” to a variety of social institutions. The applications use the idea of efficiency to account for the emergence and persistence of institutions such as the family, sharing groups, private property, discrimination, and the norm of reciprocity. Efficiency entails eliminating costly externalities with the least possible transaction costs (i.e. costs involved in negotiating, writing, and enforcing agreements). Our critique of efficiency shows how power relations, goal ambiguity. and the institutional relativism of choice render efficiency problematic. The sociological criterion of reproducibility may be more relevant where these features hold. If efficiency analysis is used, the sociologist should insist that it allow the identification of inefficiencies and that institutional participants welcome suggested improvements in efficiency.