Embeddedness Theory (Granovetter)

Overview

Granovetter (1985) argued that economic action is embedded in concrete, ongoing systems of social relations — it is neither driven by atomized rational calculation (under-socialized view) nor by internalized cultural norms (over-socialized view). This "new economic sociology" reframes markets as social structures where trust, reputation, and network position shape transactions.

When to Use

• Explaining why economic actors choose partners based on relationships rather than price alone
• Analyzing trust formation and opportunism in buyer-supplier networks
• Evaluating how network position affects firm behavior and performance
• Critiquing purely rational or purely cultural explanations of market behavior

When NOT to Use

• When transactions are genuinely arms-length and commoditized with no relational component
• When the analysis concerns macro-institutional structures beyond interpersonal networks
• When a formal economic model with complete information adequately explains the behavior