After the Collapse: Spontaneous Institutionalization and the Emergence of Market Institutions

We explore how, and under which conditions, market institutions can spontaneously arise after an institutional collapse. Drawing on emergence theory, we develop a multilevel model of institutional emergence after an extreme collapse, where only the individuals’ memories remain from pre-collapse institutions. We start with individuals seeking to transact, looking to decrease cost and increase trust in their transactions. At the micro level, the multiplication of transactions can trigger processes of amplification–convergence and cancelation, through an activity- and a cultural cognitive-based driver of institutionalization. At the meso level, these processes result in the spontaneous emergence of legitimacy and power, organized agents shaping emergence, and the institutionalization of transaction attributes. At the macro level, the amalgamation of compatible institutionalized attributes leads to the emergence of market institutions, with nine possible institutional infrastructures, which are shaped by the initial conditions of emergence. Our study contributes to the literature by isolating the role of spontaneous processes in institutional dynamics, by identifying the initial conditions necessary for the emergence of market institutions, and by showing how legitimacy and power can spontaneously emerge. We illustrate our reasoning with reference to refugee economies.