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Innovation, diffusion, and institutional change

Posted on: Tuesday, 30 September 2003, 06:00 CDT

It is generally accepted that technological development is a stimulus of institutional change. Institutional or ceremonial impediments to change are overcome by specific instances of technological progress which hold the promise of improvements in the life processes of the community. Concerns and interest surrounding the processes by which institutions are changed are thus given weight because of their connection with the progressive evolution of society.

The attention of institutional analysts was initially drawn to the sources of innovation (Hodgson 1988, 1994). That is,, attention was first focused on the inventors rather than the users of the innovations. Thorstein Veblen proposed that idle curiosity was the source of creativity in technological innovation, while the instinct of workmanship and the parental bent were responsible for the implementation and spread of new technologies (Walker 1977). In this tradition technological change is examined from a supply-side perspective. Consequently change is seen to proceed from technological possibilities, via the creativity and initiative of inventors.

We do not discount this perspective but rather seek to complement it with a demand-side perspective of institutional change. Such a perspective draws' attention to the who or why of acceptance rather than the who or why of invention. Questions of acceptance are the subject matter of diffusion theory. Diffusion processes have previously been used to provide a framework for understanding institutional change (e.g., Witt 1989; Bush 1987). Certain elements of diffusion theory, such as rationality assumptions, are not compatible with an institutional perspective; however, much is compatible. The present paper seeks to examine the connection between diffusion and institutionalism in a more detailed fashion.

Before proceeding further, some comment on level of analysis is in order. As there are different types of institutions, there are different types of institutional change. Our interest is with what may be considered mid-level institutional change, specifically with the types of institutional change instigated by and associated with society's use of new technologies and techniques. The mid level falls within the category of informal institutions rather than formal institutions. Formal institutions, as exemplified by legislation, may be characterized by explicitness and by attention to consequences. Explicitness is necessitated by the intention to regulate the behaviors of others at a physical and temporal remove from the proceedings of law making. Diffusion of new technologies shares the characteristic of attention to consequences but does not share the characteristic of explicitness, since there is typically not the intention to regulate the behavior of others.

The mid level is also to be distinguished from the gradual drift in traditions or norms which is associated with the imperfect reproduction of institutions from one generation to another (Veblen 1919). Lower-level (but not inconsequential) changes maybe exemplified by the increasing commercialization of holiday observances which were once mainly religious in nature. Such gradual changes are not characterized by attention to consequences; rather they are an unreflective adjustment of behaviors to wider trends such as secularization and materialism.

In part, mid-level institutional change is consequential because it is cumulative. The record of adaptation to urban and industrial change is to be found in changing consumption patterns and choices (DeCunzo 1987). Collectively, the spread of new technologies and techniques exercises a profound change on society as some important innovations leave a cascade of related institutional changes in their wake. Widespread adoption of the automobile generated an ongoing ripple effect of associated cultural apparatus which includes shopping malls, suburbia, and McDonald's. New electronic communication technologies may prove to have an equally transformative effect.

Diffusion Theory

The tradition of diffusion theory encompasses not only the spread of new objects but also new ideas. Daniel Bell regarded diffusion as the key engine of change in society. In this estimation, he was speaking not simply of new goods but of privileges, particularly access to higher education and the institutional changes which radiated through society as a result (Bell 1968). In this sense diffusion is compatible both with the notion of technology-as-tools and the notion of technology-as-organized-intelligence (Waller 1982). Diffusion is a generalized phenomenon, having been studied from such diverse perspectives as developmental economics, rural sociology, medical sociology, cultural anthropology, and marketing among others (Brown 1981; Hagerstrand 1967).

While various disciplines maintain their own traditions of diffusion-based research, a single source is relevant to all. Eyerett Rogers' book, TKe Diffusion of innovations (1962, 1995), is a compilation and synthesis of diffusion research and is regarded as the "bible" of diffusion theory. This work articulates central tenets of diffusion theory such as normally distributed adoption timing and the five-part segmentation of adopters. It also summarizes classic studies in the foundation of diffusion theory, such as the spread of hybrid corn in the Midwest and the Columbia antibiotic study.

Two aspects of diffusion theory, as received in the Rogers texts, tend to make its application for institutional analyses problematic. First, the model of individual behavior is embedded in the rational choice mode. While diffusion theory is not explicit about cognitive assumptions, bounded rationality is the underlying hypothesis. Potential adopters are assumed to weigh the costs and benefits of an innovation in a more or less traditional economic sense and from a more or less individualistic perspective. While the rational choice model might prove adequate to understand the diffusion of instrumental innovations such as hybrid corn, it seems inadequate to explain such consumer phenomena as the spread of electronic pagers among teenagers or the surge of demand for sports utility vehicles among adults. Understanding such phenomena requires an institutional perspective.

Second is the issue of time lag between the introduction of an innovation and its adoption by a given individual. In diffusion theory, delay in adoption is explained as a lack of awareness of the innovation or by lack of adequate information on which to base the decision to adopt. That is, the process of diffusion is equated with communication, and delay is equated with inadequate communication (Gatignon and Robertson 1985). An institutional perspective, on the other hand, necessitates attention to the binding force of habit and tradition as well as the impact of adoption on social relations. Outright rejection of an innovation is regarded in diffusion theory as unreasoning atavism. However, the possibility of an informed resistance to innovation, based on values, does in fact happen and is compatible with the institutional perspective.

While much of the body of diffusion literature is useful in the study of institutional change, a revised cognitive model is required for an appreciation of the process of institutional change. Ceremonial considerations should be given an equivalent role to that of instrumental considerations, and the impetus to adopt an innovation should be balanced between individualistic and group concerns.

Roles of Cognition and Emulation in Diffusion

As John Dewey (1939) pointed out, new stimuli cause mental tensions which produce cognitive activity, while the absence of such stimuli limits mental activity to habitual response. In other words, the predominance of routine and habit does not preclude purposeful behavior under appropriate circumstances (Hodgson 1994). In conformity with this precept our thesis is that, in the main, human behavior is directed by habit. Cognitive engagement is not characteristic of routine situations but is stimulated by specific occurrences such as novelty or urgency. The present discussion is within the context of novelty, particularly forms of novelty which hold the potential to advance instrumental or ceremonial values. This section first examines cognitive processes and then discusses two characteristic types of response to innovation.

Cognitive Responses to Innovation

Specific features of the cognitive process involved in response to the new are central for understanding institutional change. Assuming self-interest to be a factor, two alternative models may be considered: preferences and plans (Elster 1983; Redmond 2001). Either preferences or plans can serve as the basis for choice, and choosing to adopt the new is the motor of diffusion. If preferences were the operative process in adoption, it must be assumed that a preference for the new object was preexistent. That is, adoption would be triggered simply by the availability of the novel item in a newly expanded choice set. This seems unlikely and is difficult to reconcile with the fact that the diffusion process of even the most widely accepted innovations takes many years to complete. Clarence Ayres took up a familiar institutionalist theme on the implausibility of preexisting preferences in commenting upon the innovation of movable type: "Should we \imagine the thirteenth and fourteenth centuries to have eked out a miserable existence complaining bitterly all the while over the injustice which deferred the invention of printing to the fifteenth?" (1962, 138).

Dealing with novelty requires something in the way of imagination and adaptability. The individual must visualize novel possibilities and make connections which have not previously been a part of the choice set. This is a planning activity, reflecting a means-ends type of thinking. New objects are not viewed as desirable in and of themselves, as would be the case if preferences were operative, but rather as means by which to attain some desired end such as economic advantage or status. According to Dewey (1939) the tension produced by new stimuli induces the formation of an "end in view," that is, the exercise of anticipation and the comparison of consequences. Adopters of the new are active agents who recognize that they have options for action (Mayhew 2001). Thus individuals who adopt the new have adapted to a changing environment in a planned way.

Institutionalists have noted that instrumental logic is oriented to problem-solving ends, while ceremonial logic is oriented to invidious distinction or emulation (e.g., Bush 1987; Waller 1982). Under the assumption that planning is the cognitive activity involved in adoption decisions, adoption of a given innovation may be driven by either of the two logics. In both cases, the behaviors are correlated by values. However, adoptions need not be driven by a logic which is exclusively instrumental or exclusively ceremonial. Adoptions which are rationalized on economically pragmatic grounds may, in fact, be motivated by invidiousness. In such cases ceremonial values correlate both ceremonial and instrumental behaviors and the behavior is said to be ceremonially warranted (Bush 1987).

Last, in the cognitive process it is important to note the re- emergence of habit and routine. Higher levels of cognitive activity with respect to the adoption decision give way in the longer run to institutionalized incorporation of the innovation into everyday life. The beginnings of institutional change arise in disturbances to the existing routine, whereas adoption of the new eventually gives way to a new routine (Hodgson 1988). If preferences were the operative cognitive process, then utility maximization would grind on at a uniform level. Instead, the operation of a planning process requires an initial spike in cognitive activity, but this is followed by the relative quiescence of routinization. Thus the new stimulates an adaptive adjustment, not a persistently high level of cognitive activity.

Innovative Adopters: Planning without Emulation

The earliest adopters of an innovation have come to be known as innovators (Rogers 1962, 1995). This has obvious potential for confusion because the producers of a new technology are also termed innovators. This is no mere semantic coincidence since the first producers and the first buyers share key characteristics. Earlier adopters are marked by venturesomeness, intelligence, ability to cope with uncertainty, and willingness to accept risk (Rogers 1962, 1995). In the following, the term innovative adopters will be applied to the earliest adopters and the term innovators reserved for the inventors.

Segments of the population are most usefully defined by differences in some variable of central conceptual importance. In the case of diffusion theory the discriminating dimension is time, specifically the length of time from the introduction of an innovation to its adoption. From an institutional perspective, however, the important dimension is in ability and willingness to overturn established ways. To be among the first to break with tradition and habit is to be an innovative adopter. The planning activity that stimulates innovative adoption of new technologies is designed for individual ends: to shorten the social distance to higher status individuals or to prevent its lengthening. That is, ceremonial interests are closely linked with institutional change, at least of the mid-level variety considered here.

Of particular note is the fact that innovative adopters are the initial adopters in their social networks-literally the first on the block. No one else in their circle of acquaintances has direct experience of the innovation. Innovative adopters have no social model to follow, no one to emulate. Consequently the performance of the innovation is as uncertain as it ever will be and, more saliently, the reaction of others to adoption of the innovation is equally uncertain. The dual uncertainties, technological and social, cause most members of society to initially reject innovations or to hesitate. What is required for innovative adoption is imagination, and the research on the earliest adopters shows that they have a greater ability to deal with abstractions than later adopters (Rogers 1962). Imagination substitutes for emulation. Self-interest is the motive, either to move upward in the esteem of others or to maintain a position of status which might be lost if others seized the opportunity first.

Because of its very novelty the new object carries an element of uncertainty as to its efficacy in attaining the desired ends and presents an unsanctioned departure from habitual patterns of behavior. Both the economic risk and the social risk exercise an inhibitory effect on the majority of the populace. In diffusion theory fewness is a hallmark of the innovative adopter category, who find the prospective rewards outweigh the perceived risks. A critical element in innovative adoption is the anticipation of a favorable reaction of others to adoption. This anticipation, as Pierre Bourdieu (1990) noted, is based not on what the actor sees but what he foresees of the response of specific and relevant individuals. Thus the innovative adopter's gamble is conditioned by a knowledge of the history and thoughts of other actors. The social position of an innovative adopter is enhanced only in the degree that others follow suit (Witt 1989). Consequently a pivotal element in the planning process is anticipation of the likelihood of subsequent adoptions among socially relevant individuals.

There is a parallel here with Veblen's analysis of the instincts or proclivities of innovators. On the supply side, the discovery of the new is occasioned by idle curiosity while the instinct of workmanship is the motive for implementation. The supply of innovations involves both imagination and application in the process of instrumental thinking (Lower 1988). On the demand side, innovative adopters carry out a similar cognitive process. The planning process of innovative adoption involves imagination along with resolve and skill in implementing the plan. It should be noted, however, that the parallel is not seamless. Veblen's supply-side view positioned the process of innovation as close to altruistic. After invention and application, the spread of the innovation was actuated by a concern for the welfare of others, that is, the parental bent (Walker 1977). However, J. R. Stanfield (1989) pointed out that the instinct of workmanship can also tend toward invidiousness when coupled with predation or exploitation. Similarly, innovative adoption is closely connected with motives of self-interest. Personal benefit is requisite to the acceptance of risk, and these benefits may be of an instrumental character or a ceremonial character. As Ayres (1962) noted, both types of behavior are bound together and both employ intelligence. Specifically, ceremonial behavior may encapsulate instrumental behavior (Bush 1987).

To summarize, the spread of mid-level institutional change has a definitive starting mechanism in the form of innovative adoption. When presented with a new object, a relatively few individuals engage in a planning process which results in a break with habit and tradition. Self-interest in attaining an imagined and desired end state is required to overcome the confining inertia of habit and custom. Hence, for the process of diffusion to begin at all, ceremonial rigidities must not be insuperable. Clearly societies differ in this regard and consequently differ in the pace of institutional change; nevertheless the point remains that change demands at least some latitude. A noted anthropologist observed, "In all viable systems there must be an area where the individual is free to make choices so as to manipulate the system to his own advantage" (Leach 1962, 133). Social evolution, in the sense of institutional change, finds its most persistent proponents in the form of self-interested risk takers.

Followers: Planning with Emulation

The arrival of an innovation is a social irritant, something which must be evaluated. Once an innovation has been positioned as socially desirable, potential followers must assess the consequences both of adoption and of nonadoption. In this process the follower relies on the judgments, decisions, and opinions of others in order to clarify the social meaning of the innovation. Followers also employ a planning type of cognition but, in greater or lesser degree, substitute observation and emulation for imagination.

By definition, followers are slower to adopt than innovative adopters, and the reason for this is uncertainty regarding technical/ economic benefits or social reactions or both. Social reaction is important because adopters of novel items or ideas are noticeable. While many consumers seek to be noticed in a favorable light, few consumers wish to draw unwanted attention to themselves (Hamilton 1988). Thus both Veblen and Bourdieu viewed emulation as a drive to keep up with others, not as a desire to be ostentatious (Trigg 2001).

Followers not only have a model to imitate but also substantively less uncertainty in decision making. The components of uncertainty for followers are the same as for inno\vative adopters, namely technical/economic and social. Observation of applications of the new object reduces uncertainty of the technical/economic component of uncertainty while observation of previous adopters reduces uncertainty of the social component. But while the dual components of uncertainty are the same for followers as innovative adopters, the requirements for imagination, anticipation, and risk taking are magnitudes lower.

Within the set of followers, the chief variation is in the amount of observation required before a decision is made. Followers weigh the suitability of adoption in light of their social position and, in doing so, seek to know the shared social meaning attached to the innovation by others in similar roles. Interest is focused not on whether others have adopted but rather on who has adopted. An individual considering adoption can "enjoy the luxury of paying little attention to information about the innovation until diffusion reaches his status" (Burt 1987). Once this point is reached, adoption by members of that position is quite rapid in order to avoid an embarrassing loss of prestige.

The longer adoption is delayed the more the mental process involved in following becomes a progressively weak type of planning. Uncertainty as to the efficacy of adoption in terms of the means- end relationship is progressively lessened. As the diffusion process progresses, fewer and fewer cognitive demands are placed on potential adopters. Simple knowledge of the numbers of adopters becomes an increasingly powerful influence in favor of conformity (Granovetter 1978). If the volume of innovations increases markedly, as it has in industrial societies, limitations of individuals in processing the large amount of information becomes more pronounced (Shubik 1968). Reliance on the judgments and actions of others represents a coping strategy in the face of frequent exposure to novelty and resultant information overload.

For the late followers, requests to "fit in" become increasing frequent, whether verbal or nonverbal. At some point in the diffusion process, social concerns gradually switch polarity, from risk of adoption to risk of nonadoption. Rogers noted that the later adopters are motivated less by the potential benefits of the innovation than by peer pressure to adopt (1995). For example, if members of a social network commonly communicate by cell phone, holdouts in the group have this fact brought to their attention with increasing frequency and pointedness. For late followers, the plan is increasingly about avoiding a loss of status, rather than a plan to gain status. Regardless of whether the earliest adopters were motivated by instrumental values or ceremonial values or both, later adopters are actuated by values which are increasingly dominated by the ceremonial.

To summarize, followers are distinguished from innovative adopters by reliance on a model to emulate in their social environment. Nevertheless, the earliest of the followers must engage in significant planning because the social ramifications of adoption are still subject to uncertainty. As a growing number of the population adopts the innovation, this uncertainty is lessened. However, the time at which it is appropriate for a given individual to adopt differs depending on the individual's social position. The later the adoption, the less planning is involved, because the suitability of adoption is increasingly clarified for remaining positions. Conformity is the main issue for later followers, a question of remaining fully integrated.

For both innovative adopters and followers, the novelty of the new eventually wears off, leaving an altered set of habits, rigidities, and ceremonial behaviors. The culmination of the diffusion process is marked by a return to lower levels of cognitive activity. All adopters undergo an individual process of change in terms of deliberate and guided action followed by habituation (Jensen 1988). The cycle of change opens when some individuals create new institutions and closes as the new institutions mold and constrain large numbers of individuals (Hodgson 2000). Institutional change is complete when the once novel becomes a matter of routine.

On the Categorization of Adopters

Diffusion theory recognizes five adopter categories based on the timing of adoption: innovators, early adopters, early majority, late majority, and laggards. In this scheme adopter groups are delineated by standard deviations of the normal distribution with respect to time. A thrust of diffusion theory is to articulate a segmentation of adopters which allows a detailed appraisal of the progress of diffusion at any given point in time. In other words, diffusion theory is oriented to the tracking and forecasting of the spread of particular innovations.

In seeking to account for the spread of the new in society, the institutional perspective involves a different emphasis. Specifically, the focus is on differences among individuals in responding to technological opportunities and reacting to ceremonial restraints. Innovative adopters are separated from all followers by the characteristic of imaginative planning. As a result, the institutional perspective outlined above involves just two adopter categories: innovative adopters and followers. All followers share the characteristic of adaptive planning, regardless of the timing of their adoption decision. Earlier followers differ in degree from later followers but are not otherwise different in terms of mental processing.

Diffusion theory tends to concentrate on the earliest adopters. This is sufficiently pronounced in the diffusion literature that Rogers (1995) referred to the situation as a "pro-innovation bias." This bias takes the form not only of a preference for studying innovative adopters over later groups but also a stance of approval for early adoption. The innovative adopters, however, account for only about 2 or 3 percent of the population. If others do not follow, or do not follow in sufficient numbers, there is no diffusion and no institutional change. From a mathematical modeling standpoint, new product failure is defined as a situation in which the rate of followership is lower than the rate of innovative adoption (Bass 1969).

Unlike diffusion theory, which emphasizes the earliest adopters, the institutional perspective positions followers as a group with considerable interest and impact. It is important to note that while innovative adopters are critical to starting the diffusion process, followers accomplish the transformative work of diffusion, in other words, the wide spread of social acceptance. The process of institutional change depends on the followers to spread new patterns of interaction, replacing old habits and customs with new. When would-be followers fail to follow, institutional change does not proceed. Most famous among failures in the field of technological forecasting is the videophone of the 1960s. The problem was not technical but institutional: few wanted to be surveilled inside their own homes. Willing innovators there were, but few followers.

Extensions of the Institutional Perspective

Diffusion theory has been employed here as a foundation because it is a well-established means of accounting for demand-side response to innovations. However, diffusion theory, as received, is insufficiently conditioned by institutional principles to constitute a workable explanation of certain social ramifications of diffusion and institutional change. This section sketches three areas in which the institutional perspective adds clarity and insight to change processes.

Prestige Value of Newness and Acceleration of Diffusion

Newer editions of Rogers' text (e.g., 1995) provide more discussion than older on the topic of status motives for adoption, yet even the newer editions do not treat the social trends connected with this phenomenon. That individuals may display certain objects in the quest for social prestige is a well-established concept. Veblen (1961) outlined a picture of generally pervasive inclinations toward conspicuous consumption for this very purpose. It is interesting to note, however, that Veblen did not include new products among the examples of objects which might confer prestige. Thus it seems that between the start of the twentieth century and today innovations have come to possess considerable power to enhance prestige.

The prestige value of newness is not a universal phenomenon but rather a culturally and historically specific phenomenon. The question is why newness came to have substantial prestige value in developed economies in the twentieth century. In Veblen's day, individuals had little contact with mass merchandising, mass communications, or sophisticated marketing campaigns. Later, however, large corporations came to have an interest in a more rapid acceptance of new products, new models, and new styles. By the middle of the twentieth century, advertisers of new products exerted great effort to "equate newness with betterness" (Packard 1960), while consumers were keen to display earning power through new products (Galbraith 1958). More recently, ownership of the latest innovations is thought to be an integral element of new life styles and emerging consumption patterns (Schor 1998).

A related trend over the past hundred years involves the increasing speed with which new products propagate through society (e.g., Qualls, Olahavsky, and Michaels 1981). Diffusion theory accounts for the speed of propagation by examining the properties of the innovation itself, such as cost, complexity, and comprehendability. In other words, potential adopters are viewed as having a constant potential for acceptance, while differences in the object account for variability in the rate of acceptance. By contrast, the institutional perspective looks to social context for clues. In particular, changes in the social environment ca\n produce variability in the propensity of a potential adopter to accept the new. The spread of the new in society has become a more rapid process and the accelerating pace of diffusions can be viewed as a general lessening of restraints or risks with respect to new product adoptions. Douglass North (1990) observed that when the price to individuals of expressing their own interests is low, the role of these interests in choice behavior will be large. Assuming these interests to be relatively stable, disapproval (or fear of disapproval) has diminished over time.

On average, the planning process which precedes adoption finds less cause for caution than previously. The active promotion of new products by marketers contributes to the overall effect of lowering social disapproval and individual resistance to the new. Ceremonial encapsulation may be of the past-binding type (which slows diffusion) or the future-binding type (which does not) (Bush 1987). The twin phenomena of invidiousness in adoption and rapidity of diffusion indicate an unprecedented predominance of future-binding encapsulation in our society. This is fertile ground for continued reliance on new products as a key component in corporate strategies.

Creative Destruction

As a result of its pro-innovation bias, diffusion theory has much to say about the new but little to say about the old. Joseph Schumpeter's (1942) famous oxymoron-creative destruction-reminds us that something is discarded in the process of change; some loss is inherent in the act of gain. Schumpeter also was concerned with supply-side issues, specifically with investments in plant and equipment for the old which were compromised by the success of the new.

From a demand-side perspective, adoption of the new also compromises the old. New practices transform, displace, and erode established habits, customs, and traditions. Innovative adopters exercise the creative initiative which may culminate in the destruction of established institutions. Diffusion theory positions adoption of the new as pure gain, a replacement of the outmoded and inefficient with something better. This positioning derives from a mainly economic/technological view of innovation. A more social perspective, however, is attuned to loss as well as gain. The discarded habits and outmoded customs may contain much desirable in the way of community and cooperative values.

As North noted, it is necessary to delineate between the study of institutions and the study of actors' strategies (1990). The planning process which precedes individual adoption decision is a generalized phenomenon which operates on, or reacts to, particular innovations at specific times. Adopters of the new typically do not plan for the destruction of old institutions (this is a distinguishing feature between mid-level institutional change and higher-level). Whether innovative adopter or follower, the plans which culminate in individual adoption decisions focus on ceremonial interests rather than wider social goals. Thus the planning process involved in mid-level institutional change is focused on individual outcomes rather than social outcomes. A concern for the institutions and values which might be destroyed is the special province of the voluntary nonadopter.

Nonadoption

In addition to the innovative adopters and followers discussed above, nonadopters constitute the third group of interest for institutionalists. Diffusion theory pays much attention to the earliest adopters, less to later adopters, and very little at all to nonadopters. From an institutional perspective, however, nonadoption is of considerable interest.

There is a distinction between the last of the followers and the nonadopters which is at least as substantial as that between the innovative adopters and the followers, perhaps more substantial. The later followers are in conformity with the mainstream of society but nonadopters, at some point in time, are increasingly set apart from the majority. In greater or lesser degree, the fact of nonadoption becomes both noticeable and notable. Nonadoption is a choice which repositions individuals vis-a-vis others and creates institutionalized distinctions not previously extant. While ceremonial values are often associated with the maintenance of traditions and resistance to innovation, this is not the case in nonadoption of a successful innovation. When the majority has adopted an innovation, there is little to be gained in privilege or status for adherence to the past.

Nonadoption may be voluntary, a conscious decision to reject the new and adhere to the old. The Amish are a well-known example of voluntary nonadoption. In the face of accumulating change by the mainstream, a distinctive subculture is created merely by resolute adherence to traditional ways. Another example is the voluntary simplicity movement in which individuals disadopt previously adopted innovations. In either case nonadopters recognize, and negatively evaluate, certain implications of adopting an innovation. These implications rarely have to do with the functional operation of the innovation itself but concern potential disruptions or dislocations with the individual's pattern of life and relation with others. A number of labor-saving devices, for example, subvert values such as cooperative effort, energy conservation, or environmentalism.

Other instances of nonadoption are involuntary, by reason of inadequate funds or education. The disadvantaged are less well positioned to adopt innovations which might benefit them economically and socially. Concerns about the "digital divide" are not about a temporary falling behind but about a permanent and possibly widening disparity along income and ethnic lines (Hoffman and Novak 2000). Particularly in the case of communication innovations, nonadoption can create an ongoing pattern of negative reinforcement which prejudices future adoptions (Coser and Coser 1990; Redmond 1994). Some see a real risk that society may increasingly be one in which nonadopters are left behind socially as well as economically (Nowotny 1994).

Voluntary nonadopters are the only group in society who must necessarily have reflected on the broader meanings and ramifications of individual adoption. Continued resistance to an innovation that has gained wide acceptance is not made on the grounds that the innovation doesn't work but on the grounds that its use will destroy important values. This realization results from an evaluation not simply of the innovation itself or its implication for social position but from an appreciation of its context of application and its connectivity with other tools, other activities, and other individuals. Such an appreciative capacity is not overly abundant and, combined with social pressures to conform, results in a relatively small proportion of systematic nonadopters (Shi 1985).

Principles

The foregoing aims to advance the notions that institutional change has salient demand-side aspects and that diffusion theory is relevant for understanding the demand side. Diffusion, when conditioned with institutional thought, offers an instructive perspective on the process of mid-level institutional change. This perspective may be formulated into four principles of mid-level institutional change.

1. New techniques, technologies, and practices are not opportunities in and of themselves; rather they are the means by which an individual may achieve or maintain a desired social position. Potential adopters of an innovation engage in a planning process which is anticipatory in nature, is focused on the risks and rewards of adoption, and operates in and through a dynamic social environment. Such a socially oriented rationality is consistent with the notion that human rationality is an evolved trait that is thoroughly imbedded in social interaction (Nozick 1993; Hayek 1973).

2. The cognitive activity of planning is stimulated by novelty but is of limited duration. Following adoption, use of the innovation becomes habitual with the result that cognition gives way to routine. In other words, individuals switch between mental modes in a manner consistent with that suggested by Max Weber (1978).

3. Members of the social body do not simultaneously embrace change. Because individuals differ with respect to perceived risk/ reward of adoption, the timing of individual adoption decisions is variable. A relatively small proportion of the population are innovative adopters who act independently of others. The majority are followers, who wait until observation of previous adopters has lessened the uncertainties which have delayed their adoption. A minority are voluntary nonadopters whose resistance to the innovation is based on values.

a. Perceived social risk of adoption is a decreasing function of the number of previous adopters.

b. Perceived social risk of nonadoption is an increasing function of the number of previous adopters.

c. Consequently, the probability that an individual who has not yet adopted will decide to adopt is an increasing function of the number of previous adopters.

d. Where early adoption is socially rewarded, newness itself acquires prestige value and the process is accelerated.

4. The process of institutional change proceeds from the adaptive strategies of individuals, and these strategies are themselves conditioned by prior adoptions. Individuals' reactions to the new depend upon their particular economic history and their actual alternatives; hence institutional change is not the result of technological determinism but rather is a path-dependent process of cumulative causation (Veblen 1919; Rutherford 2001; Mayhew 2001).

Conclusion

From Veblen and Ayres down to more recent institutionalists, much of the analysis of institutional change resulting from technology has been focused on the supply side. The present paper focuses on the demand side of innovation, that is, an analysis of institut\ional change resulting from the spreading acceptance of innovations. Central to this perspective is an evaluation of potential adopters' cognitive processes and adaptive responses. Building upon diffusion theory, the institutional perspective differs from received diffusion theory in the categorization of adopters, emphasis on prestige of newness, attention to destruction, and the importance of nonadopters.

While we have identified Veblen with a supply-side orientation to institutional change, it should be noted that the supply/demand dichotomy was largely an artificial one in his time. In Veblen's formulation, the inventor of new ways and means was also presumed to be the user of same. The setting for idle curiosity was not an R&D lab but the farm or the machine shop. For this reason the supply of newness was closely directed by demand, and innovations could reasonably be assumed to have a progressive character. In contrast, the spheres of production and consumption have now become widely separated. The innovations which are today available for consumers to adopt are precisely those which are most advantageous for corporations to sell, and the sales process readily engages invidiousness. The progressive nature of innovations can no longer be confidently assumed. If there is not technological determinism to be found in the accelerating spread of new consumer products, there may indeed be a commercial determinism.

JOURNAL OF ECONOMIC ISSUES

Vol. XXXVII No. 3 September 2003

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The author is a Professor in the College of Business Administration, Bowling Green State University, Ohio, USA. The paper benefited from comments and suggestions by two JEI reviewers.

Copyright Association for Evolutionary Economics Fiscal Office Sep 2003

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