Design for Values in Institutions
In this chapter, I examine the relationship between institutions and moral or ethical values (I use the terms interchangeably) and, in particular, the manner and extent to which such values are or, at least, ought to be part and parcel of the design of institutions. By institutions I mean organizations and systems of organizations. So a single business corporation is an institution in this sense, and so is a market-based industry comprised of corporations. When designing-for-values to institutions, three dimensions of institutions can be considered, namely, function, structure, and culture. Moreover, there are different (possibly crosscutting) levels: the macro-level (e.g., the industry as a whole), mezzo-level (e.g., a single organization), and the microlevel (e.g., an anti-corruption system within an organization). Further, there are at least six main sources of motivation to be accommodated, and potentially utilized, in the design process. These are formal sanctions (within a framework of enforced rules), economic incentives (especially within a competitive market), desire for status and reputation, desire for control over one’s own destiny and (in some cases) power over others, moral motivations, and a miscellaneous assemblage of psychosocial factors, e.g., status quo bias, overconfidence, desire to conform, and irrational desires. To illustrate and facilitate understanding of designing-for-value to institutions, I will discuss different features of a variety of quite diverse contemporary institutions. The institutions and design features in question are (respectively) (1) the design and construction of an entire organizational system from the ground up, namely, a compulsory retirement income system (a hybrid public/private sector institution); (2) the redesign and renovation of an anti-corruption system for existing police organizations (public sector institution); (3) the design and construction of a reputational index for organizations competing in a market as one element of a broad-based cultural-change process for the industries in question; and (4) the redesign of disclosure requirements for credit card pricing mechanisms.
KeywordsInstitutions Design for values Anti-corruption system Reputational indices
Sometimes the term “institution” is used to refer to simple social phenomena such as conventions, e.g., handshakes, and sometimes to complex social forms that are not organizations such as human languages or kinship systems. However, the concern in this chapter is only with institutions that are also organizations and/or systems of organizations.
Such organizations (or systems thereof) are complex social forms that reproduce themselves and include governments, police organizations, universities, hospitals, business corporations, markets, and legal systems. Moreover, social institutions in this sense are among the most important of collective human phenomena; they enable us to feed ourselves (markets and agribusinesses), to protect ourselves (police and military services), to educate ourselves (schools and universities), and to govern ourselves (governments and legal systems). In short, institutions have purposes or functions.
Institutions also have structure and vary greatly in this regard. Compare, for example, the hierarchical top-down structure of military organizations with the flat democratic structures typical of amateur sporting clubs.
The third main dimension of institutions is culture, the “spirit” or informal set of attitudes that pervades an organization and which might reinforce or negate the more formal requirements of the organization. An example of the latter is the culture in certain police organizations which protects those engaged in corruption rather than exposing them.
A further feature of institutions is their use of technology; indeed, technology is in part constitutive of most, if not all, modern institutions. Some technologies have specialized functions and are only used by certain kinds of institutions, e.g., weaponry used by military institutions. Other technologies have generic functions and are used by virtually all institutions. Consider, for example, the use of the Internet by modern organizations. This close relationship between institutions and technology has led to the use of terminology such as the term “socio-technical systems.” Terminology aside, the design of institutions typically involves close attention to relevant technology; after all, institutions shape and are shaped by technology. However, my concern in this chapter is with institutions per se, and my periodic references to, and descriptions of, technology need to be seen in this context.
Viewed synchronically, institutions are multi-level collective entities. That is, they have different, and possibly crosscutting, levels. For example, the global banking sector can be viewed at the macro-level: the industry as a whole. At this level there are multiple banks in market-based competition with one another. However, at what might be referred to as the mezzo-level, there is simply a single organization: one bank. Further, at the microlevel there are various sub-organizational units, such as a single bank’s fraud and anti-corruption unit. These levels are crosscutting from an institutional design perspective since, for example, a regulatory change, such as the requirement to segregate the investment arm from the retail banking arm, might affect all the banks but do so only in respect of the internal structure of each.
Viewed diachronically, institutions can be thought of as constantly evolving entities, e.g., as increasing or decreasing in size, capacity, and so on. An important distinction to be made here is between institutions which have evolved more or less unconsciously and those which have been consciously designed. Legal systems are an example of the former, whereas the modern limited liability corporation is an instance of the latter. Naturally, the boundary between these two kinds of institution is vague. Moreover, most modern institutions have at least some organizational components which have been consciously designed, e.g., information and communication technology (ICT) service units. Further, some institutions can be designed and constructed wholly anew from the ground up; others cannot be. An example of the latter might be the criminal justice system. Here the image of Theseus’s ship comes to mind. While a ship is at sea, parts of it can be changed piecemeal, but the ship cannot be demolished and rebuilt from the ground up. On the other hand, a ship redesigned and rebuilt in a piecemeal fashion may end up being radically different at the end of the process from what it was at the start. Consider, for example, the institutional redesign and rebuilding of the governance structure in post-apartheid South Africa.
Among other things, a normative theory of institutions specifies what the purpose or function of particular types of institution ought to be, as opposed to what in fact it is. Enron, for example, apparently had the de facto institutional purpose of enriching its CEO and other senior officers, but this was surely not what its institutional purpose ought to have been.
One normative theory of social institutions is based on an individualist theory of joint action (Miller 2010). Put simply, on this account the organizations or systems of organizations are ones that provide collective goods by means of joint activity. The collective goods in question include the fulfillment of aggregated moral rights, such as needs-based rights for security (police organizations), material well-being (businesses operating in markets), education (universities), governance (governments), and so on.
Self-evidently, institutions in this sense have a multifaceted ethico-normative dimension, including a moral dimension. Moral categories that are deeply implicated for social institutions include human rights and duties, contract-based rights and obligations, and, importantly on this teleological normative account, rights and duties derived from the production and “consumption” of collective goods (Searle 1995). (This is not the economists’ notion of non-rival and non-excludable goods.)
Collective goods of the kind in question have three properties (Miller 2010, Ch. 2): (1) they are produced, maintained, or renewed by means of the joint activity of members of organizations or systems of organizations, i.e., by institutional actors; (2) they are available to the whole community (at least in principle); and (3) they ought to be produced (or maintained or renewed) and made available to the whole community since they are desirable goods and ones to which the members of the community have a (institutional) joint moral right.
Such goods are ones that are desirable in the sense that they ought to be desired (objectively speaking), as opposed to simply being desired; moreover, they are either intrinsic goods (good in themselves) or the means to intrinsic goods. They include, but are not restricted to, goods in respect of which there is an institutionally prior moral right, e.g., security.
Notice that on this account of institutions institutional design will consist in large part in designing and establishing institutions that realize collective goods and, in the case of existing institutions, redesigning them to ensure that they continue to provide such goods in circumstances in which they are failing to do so. Notice also that this normative account is consistent with a description of the ontological genesis of institutions, according to which it is a mix of unconscious evolutionary social processes and conscious design.
Whether one accepts this normative theory or some other (Goodin 1998; Van den Hoven et al. 2015), at the most fundamental level, designing-for-values to an institution must be done in the context of some account of the institutional function or purpose of the institution in question. Moreover, to some extent this purpose or function will determine what is an appropriate structure and culture. After all, structure and culture ought to facilitate institutional purpose. Perhaps a hierarchical structure is necessary if military organizations are to realize their institutional purposes of successfully waging war. On the other hand, top-down hierarchical structures may not be conducive to academic work and, therefore, ought not to be imposed on universities.
We need to distinguish between the institutional purpose of a single organization and that of the system of organizations of which it is a part. An obvious example here is that of market-based organizations. Particular market actors come and go; indeed, according to the normative theory of the competitive market, this is desirable. However, the institution, the market-based industry, remains. According to one normative account of the economic mechanism of the “invisible hand,” the institutional purpose of markets is to maximize utility. On a contrary account, it is to produce an adequate quantum of reasonably priced goods or services of reasonable quality. Importantly, on both accounts it is the set of business firms taken as a whole which realizes the institutional purpose rather than any one organization considered on its own.
We need to make further distinctions between market-based and nonmarket-based institutions, e.g., governments and most police organizations, and also between both of these and hybrid institutions – part market based, part nonmarket based. An instance of the latter discussed below is that of a compulsory retirement savings scheme.
Market-based institutions are designed with a view to the incentive of material gain: money, in short. Markets will work effectively only if the structure of economic incentives is appropriately designed. By contrast, criminal justice institutions are designed in the light of the motivating force of enforceable laws, rules, and regulations. Institutional actors will comply because if they don’t sanctions will follow. This is, of course, a simplification. The design of most, if not all, contemporary institutions utilizes financial incentives as well as rules backed by formal sanctions. Moreover, there are other pervasive drivers in play among most institutional actors. One of these is the desire for control of over one’s own destiny (autonomy) and (perhaps) control over others (power). Another is reputation or status. The latter is probably more important to academics than, for example, financial reward. And there are moral motivations. Institutions depend heavily on institutional actors having a moral sense and acting on it. If one is inclined to doubt this, then consider the destructive forces that are unleased when the members of a given institution abandon basic moral precepts and ignore their institutional and moral duties to one another and to those they are employed to serve. Corrupt government and other officials in impoverished African states, such as the Central African Republic, are a case in point. Finally, there is a miscellaneous assemblage of psychosocial factors, e.g., status quo bias and overconfidence, that affect institutional actors and, therefore, can facilitate or impede institutional design. Many of these have been identified and described by Richard Thaler and Cass Sunstein in their influential book, Nudge (2008).
Designing and Building an Institution from the Ground Up: Compulsory Retirement Income Systems
Superannuation is the name of Australia’s compulsory retirement income system. Superannuation differs from some other institutions in that it has been intentionally designed by Australian policymakers to serve a particular purpose (provide for the financial needs of retirees) and do so by a specific means (compulsory savings for the workforce). In short, the collective good which Australia’s compulsory retirement income system exists to provide is an aggregate of needs, namely, the aggregate of financial needs of Australian retirees. Recently, the Cooper Review (Cooper 2012) identified a raft of deficiencies in the current Australian superannuation system pertaining to its efficiency and effectiveness and has sought to redesign it in a variety of ways. However, in doing so it has left its basic structure intact.
While superannuation has an important moral purpose, a defining characteristic of the system is that the moving parts are outsourced almost entirety to the private sector. The majority of Australians are members of institutional superannuation funds that are required to be set up as trusts to offer the members the protection trust law has traditionally provided to beneficiaries. The trustees of most funds outsource the investment management and administration to third parties, who may or may not be connected to the fund. Typically, upon taking a new job, employees are automatically enrolled as a member of their new employer’s default fund unless they elect to have their superannuation contributions directed to another fund.
Accordingly, superannuation is a hybrid public/private sector institution and has been specifically designed as such. Thus, the division between market-based and nonmarket-based institutions is not necessarily a strict dichotomy; there is also the possibility of hybrid institutions: institutions that utilize the mechanism of the market but are not wholly market based. The Australian compulsory retirement savings system is a case in point, but there are many others. Needless to say, by the lights of our normative teleological account of social institutions, whether an institution ought to be wholly market based, nonmarket based, or a hybrid of both is a matter to be settled by recourse to collective goods: which of these three models most efficiently and effectively enables the collective good definitive to the social institution in question to be produced?
From the perspective of designing-for-values, there are some interesting aspects of the superannuation scheme, aside from its basic institutional purpose of providing for the financial needs of retirees. The first point is that the scheme is compulsory; so the freedom of Australian workers is being infringed in the service of a larger purpose. An important moral question here is whether or not individual freedom should be overridden by their future well-being. So there is an element of paternalism here. The second point is that within the constraint of compulsory saving, the scheme does attempt to maximize freedom by allowing for the possibility for self-managed funds. Australian can choose whether they are in charge of their own superannuation fund or they consent to their funds being managed by someone else.
Regarding the second point, surely maximizing freedom is morally right, other things being equal. What of the first point? Here it is important to note that if workers were not forced to save to provide for their own retirement, others would be forced to provide for them instead. This would surely be unfair. Therefore, the argument against compulsory savings based on the infringement of the freedom of workers collapses.
Redesigning an Anti-corruption System for Police Organizations
According to one teleological normative theory of police organizations, the protection of aggregate moral rights (a collective good) is the central and most important moral purpose of police work, albeit a purpose whose pursuit ought to be constrained by the law. So while police institutions have other important purposes that might not directly involve the protection of moral rights, such as to enforce traffic laws or to enforce the adjudications of courts in relation to disputes between citizens, or indeed themselves to settle disputes between citizens on the streets, or to ensure good order more generally, these turn out to be purposes derived from the more fundamental purpose of protecting moral rights, or they turn out to be (non-derivative) secondary purposes. Thus, laws against speeding derive in part from the moral right to life, and the restoring of order at a football match ultimately in large part derives from moral rights to the protection of persons and of property. On the other hand, the serving of summonses to assist the courts is presumably a secondary purpose of policing.
While police ought to have as a fundamental purpose the protection of moral rights, their efforts in this regard ought to be constrained by the law. In so far as the law is a constraint – at least in democratic states – then this view accommodates “consent” as a criterion of legitimacy for the police role. However, on this view legality, and therefore consent, is only one consideration. For police work ought to be guided by moral considerations – namely, moral rights – and not simply by legal considerations.
An important consequence of this account is that police organizations need to be designed in such a way that they have a degree of independence of government. For one thing, governments might engage in illegality or the violation of the rights of their citizenry. For another, the primary commitment of police organization must be to the law (and not to “men,” so to speak). On the other hand, police organizations need to be responsive to the democratically elected government (and other democratic bodies). This gives rise to difficult issues of institutional design of values, specifically, independence versus responsiveness.
A stringent vetting process to prevent corrupt and other inappropriate applicants from entering the organization
Intelligence gathering, risk management, and early warning systems for at-risk officers, for example, officers with high levels of complaints
Proactive anti-corruption intervention systems, for example, targeted integrity testing
External oversight by an independent, well-resourced body with investigative powers
The first point to be made is that the institutional purpose of an anti-corruption system is a moral purpose; so designing an anti-corruption system is designing-for-ethics at a fundamental level. However, the above features give rise to a variety of ethical issues. A vetting process which excludes applicants because of the level of ethical risk they pose might be regarded as unfair. Perhaps it is in some cases, e.g., persons who have criminal associates but who are not themselves known to have engaged in any criminal activity. However, arguably, society’s interest in relatively corruption-free police service overrides fairness to some individuals in respect of job opportunities.
External independent oversight is surely unexceptionable and has been found to be effective against police corruption. Interestingly, however, internal investigation units have been continued to work to some extent in tandem with these external bodies. This arrangement enables the police organization itself to continue to take a high degree of responsibility for its own unethical officers. So the design accommodates both considerations: “owning your own corruption” but also being subject to external oversight and, if necessary, intervention.
Recent developments in ICT have enabled the development of, for example, early warning systems based on a complex mix of risk factors. This is a good example of technology deployed in the service of institutional purpose.
Targeted integrity testing has been found to be an effective means of identifying and removing corrupt officers. However, it has also generated intense ethical debate, given that integrity testing involves trapping or “stinging” an unsuspecting officer into performing a corrupt action which, but for the trap, he would not have performed. That is, he would not have performed that particular token act. Of course, if the trap is ethically well designed, then the trapped officer was, nevertheless, in the habit of performing similar corrupt actions.
Institutional Design and Mobilizing Reputation: Reputational Indices
Business organizations and markets have evolved over hundreds of years. However, they have done so in the context of frequent government interventions of redesign, notably by means of regulation, and in the service of collective goods.
In the case of business organizations and markets, the collective goods include (i) the coordination of buyers and sellers of goods and services and (ii) a quantum of a product or service sufficient to meet the relevant aggregate needs of the population in question. Here Adam Smith’s invisible hand mechanism is salient. The outcome (a collective good) of the workings of the invisible hand is the ultimate purpose (collective end) of this institutional mechanism (e.g., an adequate supply of houses, of auditing services, of retirement savings, etc.); profit maximization is the proximate end. Moreover, arguably the quantum of goods or services in question ought to be reasonably priced and of reasonable quality.
As we have seen, to realize their institutional purposes, market-based industries have relied predominantly on economic incentives and enforceable rules. However, I suggest there is another motivational source that might be utilized, namely, reputation. Naturally, some groups and organizations are more sensitive to reputational loss and the possibility of reputational gain than others. Corporations and professional groups in the financial services sector, including bankers and auditors, are very sensitive to reputational loss. Those entrusted to make prudent decisions with other people’s money are inevitably heavily dependent on a good reputation, similarly, for those entrusted to provide independent adjudications in relation to financial health.
When a high professional reputation is much sought after by members of an occupational group or organization and a low one to be avoided at all costs, there is an opportunity to mobilize this reputational desire in the service of promoting ethical standards. Here the aim is to ensure that reputation aligns with actual ethical practice, i.e., that an organization’s or group’s or individual’s high or low reputation is deserved. One means to achieve this is the reputational index. Such an index could be constructed whereby an ethics audit awards scores in relation to specific ethical standards. Let me now sketch the broad outlines of such a reputational index.
Deserved reputation can provide an important nexus between the self-interest of corporations and professional groups, on the one hand, and appropriate ethical behavior toward consumers, clients, and the public more generally, on the other hand. More specifically, the deserved reputation of, say, financial service providers, be they corporations or professional groups, can provide such a nexus. Here there are three elements in play: (i) reputation, (ii) self-interest, and (iii) ethical requirements, such as particular ethical standards such as compliance with technical accounting standards and avoidance of specific conflicts of interest, but also more general desiderata such as client/consumer protection. The idea is that these three elements need to interlock in what might be called a virtuous triangle.
First, reputation is linked to self-interest; this is obviously already the case – individuals, groups, and organizations desire high reputation and benefit materially and in other ways from it. Second, reputation needs to be linked to ethics in that reputation ought to be deserved; reputational indices are a possible means to help to achieve this. Third, and as a consequence of the two already mentioned links, self-interest is linked to ethics; given reputational indices that mobilize reputational concerns, it is in the self-interest of individuals, groups, and firms to comply with ethical standards (which are also professional standards). Here I reassert that self-interest is not the only or necessarily the ultimate motivation for human action; the desire to do the right thing is also a powerful motivator for many, if not most, people. Accordingly, the triangle is further strengthened by the motivation to do right.
In recent years, the notion of a Reputation Index has gained currency in a number of contexts, especially in business and academic circles. The term seems to have a number of different senses. Sometimes it is used to describe a way of measuring the reputation that an organization actually has, since reputation exists, so to speak, in the eye of the beholder. Actual reputation does not always match deserved reputation. Accordingly, sometimes the term is used to describe a way of calculating the performance of an organization on the basis of which its reputation should be founded.
The first step in the process is to determine a way of accurately measuring the ethical performance of individual or organizational members of occupational and industry groups; this is an ethics audit.
Here I stress the importance of objective measures of ethical performance. The latter might include such things as results of consumer satisfaction surveys; gross numbers of warranted complaints and trends thereof; numbers of disciplinary matters and their outcomes; and outcomes of financial, health, and safety audits (e.g., regarding electronic crime and corruption vulnerabilities). It would also include the existence of institutional processes established to assure compliance with ethical standards, e.g., codes of ethics and conduct, financial and other audit processes, ethics committees, complaints and disciplinary systems, fraud and ethics units, ethical risk assessment processes, ethics and compliance officers, and professional development programs in ethics.
Here I note that while some of these institutional systems and processes might be legally required – and, indeed, some are under various pieces of legislation – this is by no means the case for all them. In short, while reputational indices include some indicators of compliance with those ethical standards (and associated processes of assurance) that are enshrined in law, they also include indicators of adherence to ethical standards that are above and beyond what is legally required.
In addition to the ethics audit itself, there is a need for a process that engages with ethical reputation. Since ethical reputation should reflect the findings of the ethics audit, an ethical reputation audit should drive the relationship between de facto ethical performance (in effect, the deserved reputation) and actual reputation for ethical performance. The way to achieve this is by the participation of as many occupational members and industry organizations as possible in ethics audits and by the widespread promulgation of the results of their de facto ethical performance (as determined by the ethics audit), including in the media. Naturally, the results promulgated could be more or less detailed; they could, for example, simply consist in an overall rating as opposed to a complete description of the ethics audit results.
Record, Evaluate, and Compare Alternative Prices (RECAP)
In addition to the basic motives we have utilized in the above cases of designing-for-values (e.g., desire for a good reputation in the case of reputational indices), there are a miscellaneous assemblage of psychosocial factors which influence our behavior and which can be likewise utilized, or at least taken into account, in designing-for-values to institutions (Fung 2003). Some of these psychosocial factors are motives, others are cognitive dispositions, and still others are character traits. They include status quo bias, overconfidence, the desire to conform, and various irrational impulses and desires which tempt us and weaken our rational wills, e.g., desires for instant gratification.
Richard Thaler and Cass Sunstein have developed a theoretical design posture – which they refer to colloquially as “nudge” – based in part on a recognition and understanding of these psychosocial factors (Thaler and Sunstein 2008). According to Thaler and Sunstein, the proposition that humans typically act in accord with their rational self-interest is false. Firstly, humans inevitably make choices in institutional and other settings which structure their behavior in various ways, including ways contrary to their individual self-interest. Secondly, their behavior is heavily influenced by these abovementioned psychosocial factors which tend to undermine rationally self-interested action. Consider credit card pricing schemes (Thaler and Sunstein 2008, p. 93). On the one hand, modern economic life makes it difficult to function without a credit card; credit cards are a part of the financial architecture. On the other hand, credit card pricing schemes are very complex and often tailored to the commercial interests of the credit card providers rather than to the interests of the credit card users. Moreover, consumers do not take time to calculate how much each of the available credit card options costs and make a decision on that basis. Indeed, most credit card holders do not even know how much their credit card costs them, let alone how it compares cost-wise with other credit cards. This might not be very important were it not for the fact that many credit card users get into serious financial trouble by running up large amounts of credit card debt which they then struggle to repay (Thaler and Sunstein 2008, pp. 142–143).
What is to be done? Thaler and Sunstein argue, firstly, that the financial or other kind of architecture can often be adjusted or redesigned in various ways so as to influence choices; in their credit card example, it is the choices of credit card users that are in question. Someone who thus redesigns (in this case, financial) architecture is a choice architect (in their terminology). An important category of choice architects is government authorities who introduce regulations to influence behavior. Secondly, they argue that if a choice architect (say, the government) redesigns, for example, credit card pricing mechanisms by means of regulations in order to benefit consumers in significant ways, then this may well be justified, notwithstanding that it is paternalistic.
This is not the place to embark on an extended moral analysis of paternalism versus libertarianism. Nevertheless, it is worth pointing out that Thaler and Sunstein are advocating a relatively mild form of paternalism, since choices are not eliminated or even rendered excessively costly; rather they are recommending “nudging.” They state: “A nudge… is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic options” (Thaler and Sunstein 2008, p. 6). Let us now turn to an example of institutional redesign of the “nudge” variety, namely, RECAP.
RECAP stands for record, evaluate, and compare alternative prices. RECAP is essentially a simplified disclosure requirement for sellers of products, the usage and relative costs of which “challenge” consumers leading to less than fully rational market behavior. Let us see how this might work with credit cards. Thaler and Sunstein suggest (Thaler and Sunstein 2008, p. 143) that credit card providers be required to send an annual statement to each user that lists and totals all the fees that the user has incurred over the year. This would give users a clear idea of how much they are paying and what for. Moreover, the statement should be in electronic form to enable users to compare what they are paying with what other credit card providers charge. In short, the RECAP device would facilitate much better choice, indeed, more rational choices, on the part of credit card users and may well enable many to avoid falling into a credit card debt trap.
Conclusion: Values and the Design of Institutional Reality
In this chapter, the relationship between institutions and moral or ethical values has been examined and, in particular, the manner and extent to which such values can and ought to be designed into institutions. We identified six main sources of motivation to be accommodated, and potentially utilized, in the design process. These are formal sanctions (within a framework of enforced rules), economic incentives (especially within a competitive market), desire for status and reputation, desire for control over one’s own destiny and (in some cases) power over others, moral motivations, and a miscellaneous assemblage of psychosocial factors, e.g., status quo bias, overconfidence, desire to conform, and irrational desires. To illustrate and facilitate understanding of designing-for-value to institutions, we discussed (1) the design and construction of an entire organizational system from the ground up, namely, a compulsory retirement income system; (2) the redesign and renovation of an anti-corruption system for existing police organizations; (3) the design and construction of a reputational index for organizations competing in a market as one element of a broad-based cultural-change process for the industries in question; and (4) the redesign of disclosure requirements for credit card pricing mechanisms.
There are a number of general conclusions to be drawn from the above. First, and perhaps most obviously, there are a diverse range of psychosocial factors that can be mobilized in the service of designing-for-values. These include the so-called sticks and carrots, notably enforceable rules and economic benefits, respectively. But they also include the desire to do what is morally right or worthwhile. Moreover, there are a range of less obvious psychosocial factors, including irrational desires and cognitive dispositions, that can facilitate design or which need to be otherwise accommodated by institutional designers.
Second, in relation to these psychosocial factors, it is not necessarily a matter of relying solely on one motive, e.g., enforceable rules or desire for economic benefit, albeit in any given case one or more of these motives might predominate. Rather it is typically a matter of devising an institutional arrangement which is underpinned by an integrated structure of motives. This is explicitly so in the case of the triangle of virtue used in the design of reputational indices. But it is also true of the compulsory retirement savings scheme and the anti-corruption systems for police organizations. The latter relied on a desire to do what is morally right as well as on enforceable rules. The former involved enforceable rules (deterring noncompliance), economic incentives (“carrots”), and moral considerations, such as fairness. Again, the disclosure requirements for credit card pricing mechanisms relied on enforceable rules (legal requirement to simplify and disclose pricing mechanism) as well as removing a cognitive-based impediment to rational behavior (complex pricing mechanisms).
Third, when designing-for-values to institutions, three dimensions of institutions can be considered, namely, function, structure, and culture. It should be kept in mind that on the teleological account of institutions elaborated above, function or purpose (collective good) gives, or ought to give, direction to structure and culture. Both structure and culture ought to facilitate institutional purpose. There is a tendency for institutional designers to focus on structure to realize purpose and ignore culture, perhaps because culture is more nebulous and less tangible than structure. However, as we saw in the case of the reputational indices and the anti-corruption system for police organizations, culture is often critical and, therefore, in need of an institutional designer’s attention.
Fourth, given the logical and moral priority of institutional purposes over structure and culture, a fixation with particular institutional structures can be unhelpful. Consider those whose first instinct is to opt for market-based solutions or, alternatively, public sector agencies. Often these responses are ideologically based rather than evidence based. Indeed, as we saw in the case of the compulsory retirement savings scheme, the reputational indices, and the disclosure scheme for credit card pricing mechanisms, the best design options may involve designing hybrid models involving both market-based and public sector components (or, at least, significant regulatory intervention to facilitate institutional purpose).
Fifth, at the macro-level of institutions, that is, systems of organizations, it may be difficult or even impossible in practice to design from the ground up. Accordingly, the design process may inevitably have to restrict itself to piecemeal redesigning of, or “renovating,” particular features of the institution. This is perhaps the case with institutions such as legal systems or important market-based industries that have evolved over long periods of time. Nevertheless, important institutions, such as the compulsory retirement savings system, can be designed from the ground up. Here there is a need to distinguish political feasibility from institutional possibility or desirability.
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