The Endogeneity of Legal Regulation: Grievance Procedures as Rational Myth

TLDR

Most accounts treat law as exogenous and focus on organizations’ responses to it. The study proposes a model of endogeneity among organizations, professions, and legal institutions, illustrated by a case study of equal‑employment‑opportunity grievance procedures. The model argues that organizations and professions craft rational myths mirroring the public legal order, which courts legitimize, granting legal and market benefits to compliant structures and aligning market rationality with these compliance strategies.

Abstract

Most accounts of organizations and law treat law as largely exogenous and emphasize organizations' responses to law. This study proposes a model of endogeneity among organizations, the professions, and legal institutions. It suggests that organizations and the professions strive to construct rational responses to law, enabled by "rational myths" or stories about appropriate solutions that are themselves modeled after the public legal order. Courts, in turn, recognize and legitimate organizational structures that mimic the legal form, thus conferring legal and market benefits upon organizational structures that began as gestures of compliance. Thus, market rationality can follow from rationalized myths: the professions promote a particular compliance strategy, organizations adopt this strategy to reduce costs and symbolize compliance, and courts adjust judicial constructions of fairness to include these emerging organizational practices. To illustrate this model, a case study of equal employment opportunity (EEO) grievance procedures is presented in this article.