Institutional Economics and Social Dilemmas: a Systems Theory Perspective

The present paper explains why social dilemmas are endemic to the regime of functional differentiation theorized by Niklas Luhmann. It is argued that within this regime, social systems combine two systems‐theoretic identities elaborated by the theories of Luhmann and Bertalanffy. Social systems are operationally closed and thus limitedly sensitive to the environment; at the same time, they are metabolically dependent on it. Social dilemmas are shown to originate from the conflict between these two identities, a conflict that occurs when social systems disregard their critical environmental dependence. An implication of the argument is that economic incentives present the individual‐level projections of systemic imperatives arising from the operational closure of the functional system of the economy. This implication informs the institutional economics analysis of social dilemmas by explaining these in terms of the excessive intensity of economic incentives that makes economic actors insensitive to their critical dependence on their environment.