Interactions as bargaining problem

Knight and Ensminger present a bargaining framework of social conflict where all actors have differing conceptions of social norms, and consequently negotiate on the form that these should take (1998: 105). Within this framework, each actor will prefer that this norm favour his/her preferences, and will bargain to try to achieve this. Knight and Ensminger distinguish between norms governing economic and non-economic behaviour: while bargaining over norms governing economic behaviour is a conflict of actors’ material

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interests, bargaining over norms that govern non-economic behaviour is driven by non- material or ideological preferences, and any benefits gained are non-material in nature. Nonetheless conflicts of interest are just as likely to occur over ideologically motivated norm changes as over materially motivated ones. They argue that ideology is compatible with a bargaining approach and that bargaining power has an important role to play in instances of ideologically motivated change (Ibid: 106).

Knight and Ensminger define bargaining power as superiority in resource endowments

(Ibid)6. According to their interpretation, actors with greater bargaining power will be most likely to have the norms established that would also manifest their interests. Several factors result in power asymmetries among actors that allow some actors or groups to enforce their preferred norms at the expense of others’ preferences. Such factors include, for example, the initial endowment in terms of status, or access to methods of enforcement to deploy against actors who breach or do not conform to the dominant actors’ norms. In social institutions, where enforcement power does not lie with a central formal authority like the state, rewards and sanctions may be enforced through clans or kinship networks (Ibid.).

Primarily, the bargaining approach sees the establishment of norms as an on-going negotiation process among actors embedded in social institutions, who compete over distributional advantage in accessing essential benefits.7 Actors always seek strategic advantage over the outcome of bargaining processes and norm change, and norm establishment is just a means to achieve this strategic advantage (Ibid: 107). Under the bargaining approach, social norms are a by-product of the process of competition for essential benefits. It is through this bargaining process that certain factors like initial resource ownership or status eventually influence the choice of social norms. Unequal resource ownership influences the willingness of rational self-interested actors to accept the bargaining demands of other actors. In other words, actors who own or possess substantial resources have more to say, and an upper hand in bargaining with those who do not. The establishment of social norms therefore, strongly depends on ex-ante resource asymmetries.

According to Knight and Ensminger, “... norms structure social situations that are characterized by the existence of multiple equilibria; that is, there is more than one way of coordinating our behaviour in a particular setting, but we need to establish shared expectations as to which of these ways we will actually choose” (Ibid). Actors can therefore

6 _{Asymmetries in resource ownership serve as a proxy for bargaining power (Ensminger and Knight 1997: 6 and} Knight and Ensminger 1998: 106).

7 _{The process of norm generation is relevant in the bargaining approach as it shows the ability of those who seek} to change norms to enforce compliance with the new norm. Hence the focus is as much on norm change as it is on compliance, especially when existing norms are challenged (cf. Knight and Ensminger 1997 and 1998)

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differ in their preferences of the course of action that they adopt in social situations, and whether these preferences will be taken up in the establishment or changing of norms depends upon their negotiating and bargaining power. During the bargaining process, it is very important to assess the credibility of claims made by actors about their commitments to various forms of behaviour (Ibid.). Of much relevance is the fact that the bargaining model encompasses a wide range of interactions, from formal negotiations of the whole community to implicit strategic behaviour that converges over time to form a behavioural norm. Common to all of these social interactions are features of multiple equilibria, conflict in preferences over the range of possible norms of behaviour and asymmetries in the possession of relevant resources (Ibid: 108).

Negotiating over social norms would be simple if every actor in a social institution had perfect knowledge of how other actors would assess the costs and benefits of commitment to a certain course of behaviour among many alternatives. What everyone can do with relative ease is assess to what extent their own preferred behaviour is shared by others in the community. This allows them to calculate the relative benefits of sticking to their own approach versus adopting an alternative way of behaviour. The establishment of a norm then takes place as members making this assessment adjust their own actions to the form of behaviour upon which most of the community converged (Ibid.). Certain features of social life complicate this bargaining process and deserve particular attention.

One such feature is ideology and cultural identity. Ideological and cultural beliefs affect not only how people assess the merits of various forms of behaviour, but also how people position themselves in their social world in relation to others (cf. Finke 2014). These ideological and cultural beliefs influence people’s assessments of an action’s optimal consequences for themselves and their communities. This complicates the bargaining process of norm establishment and norm change, as it involves the willingness of the powerful and the powerless to both maintain existing commitments and accept proposals for change (Knight and Ensminger 1998: 108).

The second factor, according to Knight and Ensminger is the complexity and diversity of enforcement mechanisms, which affect the cost of maintaining commitments to various forms of behaviour. Social sanctions are one very effective mechanism for enforcing conformity of behaviour and commitment to social norms. When confronted with the choice of different forms of behaviour, people must take into account the (financial and social) cost of a particular course of action and the cost of alternative ways of behaviour. The task of assessing this cost is especially crucial when individuals must choose a path of norm

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compliance versus norm change. There are certain enforcement costs involved for “reformers” of social norms who share an interest in changing established patterns of behaviour and expectations. In addition to the costs created by the guardians or enforcers of norm compliance, there are also other enforcement costs imposed from cooperating reformers. Reformers who seek to change social norms have common interests and cooperate to bring about change. In so doing, they establish their own sanctioning mechanisms to ensure that group members abide by their commitments to new norms and forms of behaviour. The success of reform efforts depends mainly on reformers’ ability to establish and maintain alternative enforcement mechanisms (Ibid).

A third factor lies in the problem of collective action, which can complicate the bargaining process. In situations where everyone would benefit from achieving a particular goal through joint activity, the temptation is high to let the others do the work (Finke 2014: 14). When goals have the character of public goods, it is difficult to exclude “free riders”, who have not participated in its supply, from the resulting benefits (Ibid). Quite often, it can result in the breakdown or failure of collective action and the public good it was supposed to create (Ibid).

A fourth and closely related factor is opportunistic behaviour by individuals, which can trust and reliance issues among group members. Those seeking to reform or change existing norms may be plagued by the opportunistic behaviour of their affiliates. Thus, loyalties can switch in a given situation when the affiliate finds it more advantageous not to adhere to new norms. Effective enforcement strategies would have to account for such risks linked to trust and reliance issues.

Having touched on the conflicting interests and the influence of bargaining powers of the actors within social institutions, I will now explicitly apply this framework to the actors within the socio-economic and political milieus of microfinance providers. This framework can allow us to understand the common economic, social or political incentives of the actors to intervene in MFI operations in the next section. Before doing so, I set the stage by presenting the general milieu in which microfinance programs and their replication programs all over the world operate.