Organizing risky business: The social construction and organization of life insurance, 1810 to 1980

The "New Institutionalism" (DiMaggio and Powell 1991) posits a Theory of Practical Action as the basis for persisting social arrangements in economic life. In this project, I use this perspective to explain the social construction and organization of the life insurance industries of New York and Arizona. I develop an institutionalized-strategies explanation of industry organization. Research by Dobbin (1994b) showed the influence of embedded "institutional logics" in shaping rational responses to the economic business of railroads in Britain, France, and the United States. I combine Dobbin's argument with recent research on the development of state-level economic policies in the United States. Leicht and Jenkins (1994) identified three distinct "strategies" employed by states in implementing economic policies, and they imply that the strategies differ mainly in their "assumptions about the nature of economic growth and the role of the state" in economic development (1994:257). 1 argue that these findings suggest that states adopt a particular strategy---a set of similar Policy tools ("tactics") for specific policy targets.; Applied to the insurance industries of New York and Arizona, an institutionalized-strategies view proposes that variation in state insurance laws reflects the meanings lawmakers associate with the economic enterprise of "life insurance." Different public conceptions of life insurance as a business led to different meanings for policymakers, and these meanings defined what tactics of control are legitimate and appropriate. These meanings derived from the economic and cultural legacy in the state---cultural heritage and economic history gave meaning to images of life insurance as a business enterprise. The legitimate, rational actions (tactics) of policymakers followed from the cultural legacy of the two states, and they constituted overall strategies directed at controlling life insurance companies. The sociocultural and historical embeddedness of meanings associated with the business of life insurance makes the lines of action rational in the minds of policymakers. In addition to showing how this process operated in the two states, I document the outcomes of such organizing activity---different rates of organizational dynamics and industry trajectories as reflected in rates of foundings, entries, and failures of life insurance companies.