Individual Action and the Demand for Institutions

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Abstract
In contrast to the recently dominant nonrational approach to institutional structure, the authors posit that new institutional structures under most conditions must have net benefits for performance of the organization or they are significantly less likely to be adopted. Over the past 2 decades, the dedicated new biotechnology firm (NBF) emerged as a new institution—a new form of science-based firm in which venture capital support of basic research is legitimated. The authors show that the most productive “star” bioscientists, one of whom invented the form, played a central role in where and when NBFs were formed and that star involvement determines which ones are most successful. Furthermore, involvement with a NBF furthers the scientific and financial success of star scientists. The authors conclude that the NBF was a rational and successful innovation for its inventor and his imitators and that explains its becoming a new institutional form.