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The first embedded mode of reasoning to be examined is institutional rationality. Its significance lies in its critique of a universalistic concept of rationality. Interrogating the fiction of the disembedded individual, it recognizes that ‘the rational individual is, and must be, an organized and institutionalized individual’. An institutional rationality acknowledges that there are different spheres of society reflected in the major institutions that organize social life (government, law, the family, religion, etc.), and that of these each has its own inherent or immanent logic. The individual is thus embedded in different institutional modes of reasoning. This chapter outlines the extent to which this institutional rationality has been recognized in organization theory.

The link between rationality, knowledge, and causality introduces the third aspect of a disembedded rationality, that which speaks to the concept of causality embedded in rational action. Where ends are uncontentious and means well defined, that is, cause-effect or means-end relationships are well understood, rational action is the adoption of technically rational means or solutions to achieve desired ends. Where ends are not well defined and well understood, or means are not apparent, technically rational action is not possible. Most organizational issues involve either a degree of contention over ends, or means that are not well defined. Hence the reference to a technocratic rationality. Technocratic denotes the application of technical means to areas as if cause and effect relationships are well established and technically rational action is possible. Technocratic rationality is the presumption or fabrication of means-end relationships. This chapter outlines how the technical has been portrayed in organization studies and the ease of its transformation into the technocratic.

This chapter analyzes the hypotheses of three models of firm behavior. It looks at what form business coalitions take and identifies how, under conditions of economic openness, the interaction of various national and multilateral designs affects the credibility of firms' commitments to the governments' institutional designs. The method of analysis examines how variations in internal parameters—such as the economic system in which a firm is embedded and the degree to which it relies on specific social contracts—interact with changes in external parameters like market integration and different forms of multilateralism. The chapter considers changes in external parameters sequentially in order to identify the cumulative effects that different levels of market integration and forms of multilateralism have for firms' preference orders.