Über die Autorin bzw. den Autor

Joel M. Podolny is dean and William S. Bienecke Professor of Management at the Yale School of Management. His articles have appeared in the "American Journal of Sociology, American Sociological Review", and "Administrative Science Quarterly".

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"This is a terrific book, a must-read. It will undoubtedly wield tremendous influence on the development of economic sociology."--Ezra W. Zuckerman, Sloan School of Management, Massachusetts Institute of Technology

"This book will appeal not only to organizational and economic sociologists but also to scholars in areas such as social inequality and status attainment, as well as to micro and industrial organization economists. Podolny advances his arguments with great care, and tests them with painstaking precision. The value of his ideas, and the research they will inspire, make this a worthy contribution to a number of fields."--Mark Mizruchi, Professor of Sociology and Business Administration, University of Michigan, author of The Structure of Corporate Political Action

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Status Signals

Princeton University Press

Introduction

WE ARE ALL FAMILIAR with the popular image of the academic researcher, high atop an ivory tower in serene and sublime contemplation. While this image provides fodder for those who are critical of the alleged detachment of higher education from practical concerns, it also is probably one of the initial attractions for those who choose academia as a profession. Certainly, I found the image strongly appealing when I decided to pursue a Ph.D. more than fifteen years ago. However, in the intervening years, I have come to the conclusion that academic research has all the serenity and sublimity of a wrestling match. Ideas and research findings do not float in through the tower window on a breeze; rather, like Gulliver's Lilliputians, they tug, pull, taunt, and elude easy capture. An idea that seems downright insightful on one day turns out to be completely wrongheaded the next. Sometimes one happens upon an unanticipated empirical finding that suggests a promising research path; however, after a week or longer, the promising path turns into a dead end. Often there is the challenge of pulling together what initially seemed to be a disconnected smattering of findings-some of which were anticipated and some of which were not. In order to be able to make significant progress, one is forced to transform sublime contemplation into active obsession, allowing half-formed ideas and initial findings to keep a grip on one's thoughts long enough that one can finally discern a pattern or clarify a concept. If one begins to believe in the mirage of well-specified ideas flowing in through the window on a breeze, there are well-meaning colleagues and blind reviewers to quickly and unsympathetically bring one back to one's senses.

Since roughly 1990, I have been wrestling with understanding how various facets of the concept of status relate to the market. Usually, we think of status in the context of relations among individuals or groups of individuals-for example, the pecking order among cliques in a U.S. high school, the deference displays in medieval courts, or the restrictions and constraints on interaction in a caste society. We think of status less often as a property that firms possess. Sometimes we might make passing reference to status distinctions among firms-noting for example that a bank is particularly prestigious, a law firm is a "white-glove firm," or that a brand has "class." Yet, even in those instances when we acknowledge status differences among firms, we generally do not give much attention to understanding how these status distinctions arise, are maintained, or are changed over time.

Like others, I had not given the concept of status in markets much thought, but when I was a graduate student at Harvard, I read a book on the investment banking industry by Robert Eccles and Dwight Crane called Doing Deals. In one of the chapters, the authors observed that investment bankers obsess about how their status compares with the status of other banks. As I discuss in chapter 3, the investment banking industry is unique in that it has "tombstone advertisements" that serve as tangible indicators of firm status in this industry. However, the more that I thought about Eccles and Crane's observation on the status obsession itself, the more that it seemed that this obsession was probably not unique to investment banks. As I looked at books and articles on different industries-from accounting to fashion to toys-it became clear that firms, like individuals, are deeply concerned with their status. However, none of these industry studies provided much in the way of systematic information about the underlying causes, consequences, and mechanisms related to those distinctions. Nonetheless, because sociologists had thought deeply about the concept of status among individuals, it seemed reasonable to try to extend and apply sociological thought on status to understanding the way in which status operates in the market.

I started along this path after being excited and inspired by the research that had emerged in economic sociology during the 1980s. Since Harrison White asked in a provocative 1981 American Journal of Sociology article "Where do markets come from?" a large number of sociologists have been seeking to demonstrate that the operation of the market can be better understood if it is conceptualized as a social mechanism. For example, White conceived of the market as a structure in which the production volumes and revenues of producers could be better understood if one modeled producers as occupying interdependent roles. According to White, producers do not perceive demand curves; rather, they perceive the choices of other producers and pick a pricing/ volume combination that places them somewhere between those producers acknowledged to be slightly lower in quality and those slightly higher in quality. By way of analogy, White (1981) observes that shortly after Roger Bannister broke the four-minute mile-a record many considered unattainable-a number of others did the same. While there clearly are alternative explanations for the quick followers on Bannister's achievement, such as improvements in training and diet, the analogy is nonetheless relevant insofar as it helps connect White's market model to sociological accounts of the role structures within groups. For example, in Street Corner Society (1981), a famous ethnography of a city street gang, William Whyte (1981) observed how the bowling scores of group members were constrained by their position in the social pecking order of the gang. In markets, as in athletic competitions or social groups, "what is possible" is in large measure socially defined by qualitatively differentiated peers looking to each other for cues regarding appropriate aspirations and performance.

While there is general agreement that economic sociology is one of the burgeoning subfields within the discipline, there is a clear lack of consensus regarding the scope of the "new economic sociology" (Swedberg 2003). I would assert that a defining characteristic of economic sociology as it is currently unfolding is that it draws on sociology's broader corpus of analytical constructs to rethink the operation of the market.

One branch of the "new economic sociology" seeks to make clear that the existence of a market mechanism for the allocation of resources is not the inevitable consequence of individuals pursuing their own interests but is instead the consequence of collectivities pursuing a common interest (typically at another collectivity's expense), dominant cultural understandings, as well as state action. This line of research has deep historical roots in Polanyi's classic work The Great Transformation (1944) but has gathered new momentum through the work of Dobbin (1994), Carruthers (1996), Beckert (2002), and Fligstein (2001).

In addition to this line of research exploring the institutional underpinnings of the market, there is a second line of research-the line of research into which this book falls-that focuses on how a market actually operates. At its most fundamental level, the market is a mechanism for matching. However, what determines which buyers are matched with which sellers? What determines the terms of trade-price, quality and quantity of effort-that arise between a particular buyer and seller?

In the standard general equilibrium model of economics, the mechanism for matching and setting prices is what has come to be called the "Walrasian auctioneer," who sets prices so that the market clears (i.e., there is no excess demand at the set prices for goods). The Walrasian auctioneer-named after the French scholar who is considered the father of general equilibrium economics-is simply an analytical convenience, an assumption that is necessary for the general equilibrium model to make predictions about prices. However, since the Walrasian auctioneer does not exist in real markets, basic questions about the market's operation remain: What does determine who exchanges with whom? What are the determinants of the terms of trade?

I think it is fair to say that economic sociologists have not developed a parsimonious account of a matching mechanism to serve as an alternative to the Walrasian auctioneer. However, they have emphasized several aspects of the market's operation that do affect the patterns of exchange and the terms of trade. For example, Espeland and Stevens (1998) highlight processes of commensuration, whereby qualitatively dissimilar goods are made comparable through the establishment of a common metric. Zelizer (1994) shows how culture and institutions shape the "mental accounts" that we reference when we calculate what we are willing to pay for particular goods and services, and even what we think should carry a price at all. Above all, however, economic sociologists emphasize networks of relations between individuals and corporate actors. One of the cleanest demonstrations of the effect of social networks on market outcomes is Wayne Baker's (1984) analysis of the floor of the commodity exchange in Chicago. Economic models of markets generally posit that market efficiency increases with the number of participants and that one of the manifestations of increasing efficiency is a reduction in the volatility of prices. However, Baker argued that individuals do not have the cognitive capacity to process countless buy and sell offers. Accordingly, when the number of traders of a particular commodity increases beyond some threshold, the market tends to fragment into distinct groups of traders who focus primarily on the buy and sell orders within their clique. Such fragmentation increases price volatility; in effect, cognitive limitations cause actors to rely on personal networks for information, and this reliance on personal networks influences the operation of the market. Mizruchi and Stearns (2001) show how a similar reliance on personal networks in a context of uncertainty affects the terms that relationship managers in banks are willing to provide to corporate clients.

More generally, networks are central analytical constructs in the "embeddedness" tradition within the new economic sociology-first articulated by Granovetter (1985) and subsequently developed by others, such as Raub and Weesie (1990), Portes and Sensenbrenner (1993), and perhaps most notably by Uzzi (1997). In the embeddedness tradition, social ties among market actors are seen as conduits for information about exchange opportunities and conduits for trust; stronger social relations allow for the sharing of more complex information between buyer and seller than simply price and quantities, ultimately allowing for a better match of interests. Padgett and McLean (2002) have recently extended and enriched the embeddedness perspective by arguing that particular patterns of exchange relations can be understood as manifestations of logics that transpose from one context to another. So, for example, the pattern of relations defined by marriage may come to be seen as an appropriate pattern for exchange relations in a particular market, with strong implications for who can exchange with whom.

Networks are also central to Burt's (1992) theory of structural holes, in which an actor's autonomy from exchange partners depends on the degree to which the exchange partners are themselves disconnected from one another. To the extent that the actor's exchange partners are disconnected from one another, the actor is able to obtain highly favorable terms of trade for the information and resources that the actor provides.

As these and other scholars show, ideas about social networks are central to the new sociological rethinking of the market. In each of the cited references, networks are important to markets in a particular way. They shape outcomes insofar as they are conduits for the flow of information or resources; metaphorically, they are channels or "pipes" through which "stuff" flows. So, in Baker's study, networks are conduits for the flow of information about buy and sell offers.

While this research certainly makes a compelling case that networks influence patterns of exchange and terms of trade by serving as pipes for the flow of information and research, there is another way in which network ties can be relevant to market outcomes. Not only can a tie between two actors facilitate flows between those two actors; that tie can also be relevant to market outcomes when others in the market make inferences about the qualities of those two actors on the basis of the tie. For example, in a study of day care centers, Baum and Oliver (1992) argue that consumers' perceptions of a day care center are strongly influenced by whether the day care center has a tie to a legitimate institution like a church or school. The significance of the tie does not hinge on information or resources that pass between the day care center and the legitimate institution but on third parties' perceptions of the tie and the inferences that those third parties draw about the quality of the day care center based on its presence.

Insofar as the presence or absence of a tie between two actors becomes the basis on which third parties make inferences about underlying qualities of those actors, the overall pattern of relations in a market becomes an important guide to market actors as they seek out exchange partners and decide on appropriate terms of trade. If the metaphor of a pipe is appropriate for the first characterization of network ties, then the metaphor of a prism seems appropriate to this second characterization because ties serve as the basis for splitting out and inducing differentiation among one set of actors as perceived by another. In effect, the pattern of ties becomes the lens through which the differentiation in the market is revealed.

As I shall discuss in more detail shortly, an actor's status is fundamentally a consequence of the network ties that are perceived to flow to the actor. Accordingly, in highlighting the relevance of status for markets, I have sought to broaden the way in which the field has come to understand the relevance of networks to market outcomes-to encourage sociologists to look to a focal actor's ties as a fundamental basis on which others (not necessarily connected to the focal actor) make inferences about the quality of that focal actor. Put simply, I have sought to highlight the importance of networks, not simply as conduits for the flow of information and resources, but as constituent elements of identity.

Status is, of course, not the only aspect of identity that is influenced by an actor's network of relations; nor is status the only aspect of identity relevant to market outcomes. For example, Rao, Davis, and Ward (2000) look at how firms affiliate with either the NASDAQ or New York Stock Exchange to affect how others perceive them. A particularly provocative demonstration of how an actor's pattern of relations becomes the informational basis on which third parties make inferences about the qualities of the actor comes from Zuckerman (1999, 2000), who examines how the conceptual categories of financial analysts affect the divestitures and stock prices of firms. A financial analyst at a securities firm does not follow and predict the performance of all firms. Instead, the analyst focuses on some particular subset of firms that conforms to an institutionalized cognitive category within the profession. A category such as food stocks may be institutionalized, but a category like entertainment might not. Zuckerman argues that analysts are less likely to track firms whose portfolio of assets cuts across the boundaries of these cognitive categories, because such boundary spanners lack a clear reference group for the purpose of evaluation. In effect, one can think about a firm's acquisitions and diversifications as constituting its pattern of exchange relations across and within categories, and the analysts make inferences about the firms based on that pattern. A lack of attention from analysts translates into a lack of attention from the investment community, which in turn gives rise to an increase in the cost of capital. Therefore, even if there is an economic justification for a portfolio of assets cutting across these boundaries, a firm is penalized by the capital markets for having a pattern of exchange relations that is inconsistent with the institutionalized categories of the market. Insofar as Zuckerman's work underscores how a firm's pattern of exchange relations shapes how that firm is perceived, Zuckerman's work also underscores the prismatic function of market networks-where the pattern of ties induces identities.

(Continues...)

Excerpted from Status Signalsby Joel M. Podolny Copyright © 2005 by Princeton University Press. Excerpted by permission.
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