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Peng and Heath (1996)Management > Comparative Management > Lectures > Independent Research > Peng and Heath > Institutions > Formal institutions > Informal institutions
Informal InstitutionsThe main informal constraints in the transition of planned economies is the network contacts that were used to do much of the business. Most of these were vertical contacts, between employees and managers and between managers and the government. These relationships are highly personal and involve intensive bargaining. During the transitions, networks become more important as informal constraints, as they are a good way to reduce uncertainty during such a volatile time. In China, this networking system is very important due to the collectivist tradition of Confucianism. The collective mind-set is also typical of Russian firms. Personal connections in Russia are known as "blat". They are the equivalent to the Chinese "guanxi".
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