Engaging the evolution of varieties of capitalism: a two-tier approach to examining institutional change

There is a continuing need for an analytical approach to institutional change, especially as applied to incremental, agent-driven change. Important institutional change can be incremental and not necessarily linked to immediate crisis. Institutional adjustments initiated by actors in the course of meeting specific economic and political goals can unblock systemic bottlenecks leading to improved economic performance. Aggregate incremental change could also lead to system evolution that deviates significantly from the original system model. This paper presents an approach that engages agent impact on the institutional system, and the political or social motives for action; the two-tiered approach moves away from the categories described in Varieties of Capitalism, one of the more influential approaches to analyzing institutional impact in an economy. Instead of static national categories, the approach presented in this paper differentiates between defining institutions and instrumental institutions, the differences in ease and speed of change which characterize each institutional tier, and how the system's evolution is impacted by the combined effect of changes in each tier. Differentiating between institutions in this manner, the paper provides an approach that is more flexible in explaining the interactions between agents and institutions, and the changes which may result.