Institutional complementarity

Institutional complementarity is the concept, used mainly in economic sociology and comparative political economy, that different institutions within a society or economy can reinforce one another's effectiveness by fitting together rather than operating in isolation, so that the presence of one institution makes another function better than it would on its own. Researchers use the idea chiefly to explain why different countries and economic systems show such varied institutional arrangements: a labor market institution, for example, may work well only alongside a particular kind of financial system or education system, and swapping out one piece without the others can undercut the whole arrangement rather than simply improve it. The concept has become especially influential in the varieties of capitalism literature, where scholars argue that coordinated market economies and liberal market economies each represent a coherent, self-reinforcing bundle of complementary institutions, which helps explain why individual institutional reforms borrowed from one system often perform poorly when transplanted piecemeal into another with a different overall institutional logic.