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From Economic Gains to Social Losses

How Stories Shape Expectations in the Case of German Municipal Finance
  • Florian Fastenrath
  • Agnes Orban
  • Christine Trampusch
Abhandlungen

Abstract

This paper analyzes how stories shaped treasurers’ expectations in municipal swap activities and contributes to the sociological debate on the mechanisms of expectation formation. Employing a deductive variant of process tracing, it synthesizes the literature on expectations in economic decision making with the literature on the diffusion of “ideas,” “myths,” and “fashions” in organization theory and management studies. The swap story has spread since the mid-1990s among German municipalities. At the heart of this story is the replacement of traditional borrowing with active portfolio optimization; financial instruments known as swaps play a leading role. This paper examines how stories shape expectations. Specifically, it delves into how the swap story, as a solution to the financial woes of local governments, shaped these governments’ expectations despite the uncertainty resulting from the instruments’ complexity. We argue that the effect of stories on expectations depends on timing. Expectations at an early stage are shaped by economic analyses to reduce uncertainty, while expectations at a later stage are primarily shaped by societal pressures and an established trend. These two distinct mechanisms produce expectations related to economic and social consequences, respectively. Selecting four typical cases, our analysis confirms that stories affected the formation of treasurers’ expectations regarding the use of swaps through these different mechanisms.

Keywords

Stories Expectations Financial innovations Economic sociology Financialization Causal mechanisms 

Von wirtschaftlichen Gewinnen zu sozialen Verlusten

Wie Geschichten die Erwartungen bei der deutschen Kommunalfinanzierung prägen

Zusammenfassung

Dieses Papier analysiert, wie Stories die Erwartungen von Stadtkämmerern bei dem Abschluss von Swapgeschäften geprägt haben, und trägt somit zur soziologischen Debatte über die kausalen Mechanismen der Erwartungsbildung bei. Unter Verwendung einer deduktiven Variante der Prozessanalyse wird die Literatur zu Erwartungen bei ökonomischer Entscheidungsfindung mit den Konzepten der Diffusion von „Ideen“, „Mythen“ und „Fashions“ aus der Organisationstheorie und Betriebswirtschaft zusammengeführt. Die Swap-Story verbreitete sich seit Mitte der 1990er Jahre unter deutschen Kommunen. Im Zentrum steht dabei das Ersetzen eines traditionellen passiven Umgangs mit Schulden durch ein aktives Portfoliomanagement, bei dem die als Swaps bekannten Finanzinstrumente eine entscheidende Rolle einnehmen. Diese Studie geht der Frage nach, wie die Erwartungen der Kommunen durch die Swap-Story als Lösung ihrer fiskalischen Probleme beeinflusst wurden, obwohl die Instrumente mit extremer Ungewissheit behaftet sind. Wir argumentieren, dass der Effekt von Stories auf Erwartungen von der zeitlichen Dimension abhängt. Während Erwartungen in einer frühen Phase der Einführung von ökonomischen Analysen geprägt sind, um Unsicherheit zu reduzieren, so sind sie in einer späteren Phase primär von gesellschaftlichem Druck und einem bereits etablierten Trend beeinflusst. Diese zwei verschiedenen Mechanismen erzeugen Erwartungen, die jeweils ökonomischen sowie sozialen Konsequenzen zugehörig sind. Unsere Analyse verifiziert anhand vier ausgewählter typischer Fälle, dass Stories die Erwartungsbildung von Kämmerern hinsichtlich der Nutzung von Swaps durch diese verschiedenen Mechanismen beeinflussen.

Schlüsselwörter

Stories Erwartungen Finanzinnovationen Wirtschaftssoziologie Finanzialisierung Kausale Mechanismen 

Notes

Acknowledgements

We would like to thank Michael Kemmerling, Hagen Kruse, and Rebecca Wangemann for assistance in collecting the data; Jan-Christoph Janssen, the participants of the SPP 1859 conference “Experience and Expectation” (Mannheim, February 2–4, 2017), Josh Pacewicz, Lisa Suckert, and two other anonymous reviewers for helpful suggestions; and our interviewees for providing valuable information.

Funding

The research is funded by the German Research Foundation’s (DFG—Deutsche Forschungsgemeinschaft) priority program “Experience and Expectation: Historical Foundations of Economic Behaviour” (SPP 1859; DFG project number 275362433).

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Copyright information

© Springer Fachmedien Wiesbaden GmbH, ein Teil von Springer Nature 2018

Authors and Affiliations

  • Florian Fastenrath
    • 1
  • Agnes Orban
    • 1
  • Christine Trampusch
    • 1
  1. 1.Cologne Center for Comparative Politics, Lehrstuhl für International Vergleichende Politische Ökonomie und WirtschaftssoziologieUniversity of CologneCologneGermany

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