Blau's Social Exchange Theory

Blau’s Social Exchange
Theory
Sinem Bulkan
Organisational Behaviour

PETER MICHAEL BLAU
(1918 Vienna, Austria - 2002)
• Son of secular Jews.
• Hitler marched into Vienna in 1938,
Peter‘s family was elected to stay,
his sister was sent to England on the
Kindertransport.
• Escape from the Anschluss,
miraculous chance to go to college,
a successfull career and mobility in
the USA.
• His family had been killed in
Auschwitz in 1942.

PETER MICHAEL BLAU
(1918 Vienna, Austria - 2002)
A founder of Organizational Sociology
(with Coleman, Gouldner, Lipset, and
Selznick)
• The Dynamics of Bureacracy
(dissertation, University of
Columbia,1955)
• The Comparative Organization Research
Project(Research Program, University of
Chicago,1970) Findings:
o The Structure of Organizations (1971)
o The Organization of Academic Work (1973)
• Exchange and Power in Social Life (Field
research to develop a theory, 1964)

Exchange and Power in Social Life
• Homans was an important influence on Blau‘s work.
• Blau was interested in examining the processes that guide face-to-face interaction
(like Homans).
• Blau argued that such interaction is shaped by a reciprocal exchange of rewards,
both tangible and intangible (like Homans).
• Blau maintained Simmel‘s assertation that every interaction (a performance, a
conversation, or even a romantic affair) can be understood as a form of exchange in
which the participant gives the other “more than he had himself possessed‖).

• Blau was interested in building a theoretical bridge that would link
sociological studies of everyday interactions between individuals and
studies that examined the collectivist or structural dimensions of society,
such as economic systems, political institutions, or belief systems.
• While the work of Homans and Simmel informed the ―interactionist‖
elements of his approach, his analysis of society‘s structural properties was
most influenced by Max Weber and Talcott Parsons.

• It rests on several assumptions about social actors and activities:
(1) social actors engage in activities as a means of obtaining desired goals;
(2) all social activities entail some cost to the actor, such as time, energy, or
resources expended;
(3) social actors seek to economize their activities as much as possible, by
keeping costs below rewards; and

Interactions
• Blau wants to link theories of everyday life to theories of wider social
structure, to bridge the 'micro-macro' divide.
• Blau points out that a person for whom another has done a favour is
expected to express gratitude & return a service when the occasion
arises.

Interactions
• Exchange is conceived of as a social process of central significance in social
life, derived from simpler processes (of attraction, for example), then leads to
more complex processes (among groups, for example).
• Social exchange may reflect any behaviour oriented to socially mediated
goals. People act rationally, and often employ exchange in pursuit of
rational ends.
For example, among members of a political organization, they may exchange
support to build solidarity, or, lovers may do things for each other to gain
commitment in the relationship.

Microstructures and Macrostructures
• Microstructures
• Blau calls face-to-face interactions ‘microstructures’.
• They are structures in the sense that regulatory rules, dominance, power,
legitimate control, and task divisions are all supported by the rewarding
nature of the interactions based on them.

Microstructures and Macrostructures
• Macrostructures
• Sooner or later the size will increase (Blau, 1964).
• Macrostructures are viewed as ‗formal organisations, committees,
bureaucracies, and the like‘
• These larger collectivities are composed of microstructures.
• Blau‘s view of the social organisation of society is one of the interconnections
among these larger macrostructures.

The Structure of Social Associations
• He recognizes that associations between individuals tend to become
organized into complex structures, often institutionalized to perpetuate the
for of organization beyond the life span of human beings.
“To speak of social life is to speak of the association
between people – their associating in work and in
play, in love and in war, to trade or to worship, to help
or to hinder. It is in the social relations men establish
that their interests find expression and their desires
become realized.”
Peter M. Blau
Exchange and Power in Social Life, 1964

Rewards
• Rewards: Sources of positive reinforcement including pleasures, satisfactions,
gratifications. They occur on a continuum from concrete to symbolic.
Blau (1964) suggested six types of social rewards:
o personal attraction,
o social acceptance,
o social approval,
o instrumental services,
o respect/prestige,
o compliance/power.

Rewards
• intrinsic rewards – are those things we find pleasurable in and of
themselves, not because they provide the means for obtaining other
benefits.
• Examples of intrinsic rewards are celebrating a holiday with one‘s family,
going on a walk with a friend, or love—the purest type of intrinsic reward.

Rewards
• extrinsic rewards – are ―detachable‖ from the association in which they
are acquired. In other words, extrinsic benefits are derived not from
another‘s company itself, but from the external rewards his company will
provide. Here, associating with others serves as a means to a further end.
• Thus, a salesperson is considerate because she wants to make a
commission, not because she values the relationship she initiates with any
particular customer.

The Exchange of Social Rewards
• Most human pleasures have their roots in social life. Thus, a good meal is
really in the company, not the flavours (consider eating a great meal alone).
• Similarly, much of human suffering also has its source in interaction with
others (heartbreak at the loss of a lover, being cheated by someone, etc.)
Social rewards to one person tend to entail a cost to another person. This does not
mean that society is a zero sum game (that every person must loose in equal
proportion to someone else's gain), but it does imply that people do not share social
profits equally.

• Social action can be intrinsically rewarding, but often social action depends
on other considerations. E.g. Social aproval, social bond, benefits from the
society
• A person who does not reciprocate is considered rude, a cad, an
ingrate. The social sanctions evident in the face of such action demonstrate
that reciprocity is expected.

• Blau says that there is an "apparent altruism" in social life. People are
anxious to help others and to reciprocate the help they receive. Underneath
this altruism, however, is an egoism - a selfishness!!
***A basic reward that people seek is social approval, & selfish disregard for
others makes it impossible to obtain this important reward.***
• Social approval is of great significance, but its significance depends on it
being genuine. (coerced praise is worthless!!)

Costs and Resources
• Costs: punishments or lost rewards.
Blau suggested three types:
o Investment: time and effort devoted to developing skills which will be
used to reward others.
o Direct costs: resource given to another in exchange for something else.
o Opportunity: loss of rewards which would have been available elsewhere.
• Resources: anything that can be transmitted through interpersonal behavior,
including commodities, material, or symbolic matter.

Power
• ―the probability that one actor within a social relationship will be in a
position to carry out his own will despite resistance‖ (Weber)
• For Blau, an individual is able to exercise power over others when he alone
is able to supply needed rewards to them.
• If the others are unable to receive the benefits from another source, and if
they are unable to offer rewards to the individual, they become dependent
on the individual.
• In short, power results from an unequal exchange stemming from an
individuals or groups monopoly over a desired resource.

• Principle 1. The more services supplied in return for receipt of some valued
service, the more power held by those providing valued services.
• Translation: In terms of teen lust, the more flowers, declarations of love,
affection and promises supplied by the boy in return for precious few sexual
favors supplied by the girl, the more power held by the girl. This makes
complete sense to teenage boys.

• Principle 2. The more alternative sources for reward possessed, the less those
providing reward can extract compliance.
• Translation: In terms of teen lust, the more alternative sources of sexual
favours at the disposal of the boy, the less the girl can extract compliance
(i.e., She: "Why didn't you call me like you said?" He: "I was busy!

• Principle 3. The more those receivers can apply force and coercion, the less
those providing can extract compliance.
• Translation: In the case of the housewife and mother who expends countless
hours of personal time in the service of her husband and children, she may
have very few options to exercise. She continues to provide valued service to
unappreciative family members because she has no other place to market her
services.

• Principle 4. The more receivers can do without, the less providers can extract
compliance.
• Translation: This works for nations, states, corporations, economies and
FAMILIES - The one who has the resources is the one with the power.
Conflict is inevitable, as each person's selfish interests cannot simultaneously
be met.

Indifference Curves, Supply and Demand Curves
• Blau uses economics as the primary theoretical base. He uses indifference curves, supply and
demand curves.
• He says that "the only assumption made is that human beings choose between alternative potential
associates or courses of action by evaluating the experiences or expected experiences with each in
terms of a preference ranking and then selecting the best alternative".
He sees three types of expectations -- general, particular, and comparative.
General expectations are associate with one's role, occupation, formed by social norms of what person
ought to receive.
Particular expectations are associated with rewards received from a particular person.
Comparative expectations are the rewards of a relationship minus the cost of maintaining the
relationship

Supply and Demand
Economy
• Demand, the quantity of a good that
is desired by buyers.
• Supply, total quantity of a product or
service that the marketplace can
offer.
• If a good‘s price is higher, fewer
people will demand it.
• As the price rises, suppliers are
willing to supply more.
Social Exchange Theory
• Blau gives the example of advice
and compliance.
• Quantity of advice horizontal, its
price in respect and compliance
vertical.
• The competition among experts for
superior status, which furnishes
incentives to supply advice, and the
competition among others for advice
furnishes incentives to supply
respect and compliance.

Economic Exchange
Economy
• It is an economic transaction where
goods or services are transferred
from the provider for a return of
relative value (compensation) from
the receiver in a manner that
advances the economic interests of
both parties.
• Clear identification on the value of
the exchange item.
Social
• Social interactions are based on the
rewards and the costs.
• Ambigious meaning and value.
• Uncertainty about our debts to
others and meanings our actions
take.

Reciprocity
• The social norm of reciprocity is
the expectation that people will
respond to each other in similar
ways—responding to gifts and
kindnesses from others with similar
benevolence of their own, and
responding to harmful, hurtful acts
from others with either indifference
or some form of retaliation.
• Frequently, two people who meet
are not equally attracted to each
other. Thus, one person will try to
impress the other -- this leads to an
imbalance of power in the
relationship.

Unbalanced Reciprocity
• Love
• Blau notes, ―Love appears to make human beings unselfish, since they
themselves enjoy giving pleasure to those they love, but this selfless devotion
generally rests on an interest in maintaining the other’s love‖
• Yet, it is often the case that in intimate relations one individual is more in love than the
other. As a result, the ―interests‖ in maintaining the relationship are not equal.
• It is this dynamic that underlies ―playing hard to get,‖ where ―the lover who does not
express unconditional affection early gains advantages in the established interpersonal
relationship. Indeed, the more restrained lover also seems to have a better chance of
inspiring another‘s love for himself or herself‖
• Like other benefits offered, affections that are given too freely decrease in value.
Moreover, the more freely one gives his affection, the more he signals that he has few
options, thus reducing his value on the “market.”

Comparison Level
• Comparison Level is a standard representing what people feel they should
receive in the way of rewards and costs from a particular relationship.
(Thiabaut and Kelly)
• The CL is the lowest level of reward acceptable for the person.
• The comparison level refers to the standard by which the individual
evaluates group membership.
• The CL is the main factor determining satisfaction with group
membership.
• The CL is determined by assessing all the known costs and rewards
incurred with the membership.
• Comparison levels can be based on previous experiences.

Comparison Level for Alternative
• The Comparison Level for Alternative (CLat) refers to ―the lowest level of relational
rewards a person is willing to accept given available rewards from alternative relationships or
being alone‖
• In other words, when using this evaluation tool an individual will consider other alternative
payoffs or rewards outside of the current relationship or exchange.
• The alternative comparison level (AC) refers to the comparison of one specific group to
other available groups.
• The AC is really the best rewards available to someone given the available alternatives.
• The AC is the main factor determining group membership.

Comparison Level for Alternative
‘I had a friend in high school that was very unsatisfied with her boyfriends. She had
one boyfriend that she didn’t really like, but kept dating him. One day we had a long
conversation about it. She said the reason she kept dating this boy was because she
didn’t think she could find anyone better at the time. She didn’t really like him she
just didn’t have anyone better at the moment. However, she believed that she could
get a better relationships and could drop him whenever she wanted.’
This is an example of comparison level for alternatives because she based her
satisfaction for her relationship/friendship on her perceived ability to find a better
relationship.

Marginal Utility
Economy
• The marginal utility of a good or
service is the gain or loss from an
increase or decrease in the
consumption of that good and
service.
• Example, consumption on the
increase in eating baklava
Social
• The more the expected rewards
entity obtains from a particular act,
the less valuable this action is and
the less likely it will be.
• Example, professor helping his
student

The Law of Collective Diminishing
Marginal Utility
• A person who has much of a benefit tends to value a further increment less than he did
when he had only a little (Blau, 1964).
• In a group, where a benefit, exists in abundance those who possess it value it less and
those who do not value it more than they would were they in a group where it is scarce.
• E.g. From the perspective of the organisation as a whole, the more benefits in the forms
of promotions that have been received by a collectivity, the less impact another
increment of promotion makers (Blau, 1964).
• The marginal utility of increasing rewards eventually declines for the entire collectivists
as well as for individuals, though the mechanisms are different; the effect for
collectivities is produced by processes of social comparison, while that for individuals is
produced by psychological reactions to meet needs and expectations.

Blau’s Propositions
• The desire for social rewards leads men to enter into exchange relationships
with one another.
• Reciprocal social exchanges create trust and social bonds between men.
• Unilateral services create power and status differences.
• Power differences make organizations possible.
• The fair exercise of power evokes social approval and the unfair exercise of
• power evokes social disapproval.
• If subordinates collectively agree that their superior exercises power
• generously, they will legitimate his power.
• Legitimate power is required for stable organization.
• If subordinates collectively experience unfair exercise of power, an
opposition movement will develop.

Conditions of Exchange – 1 –
• Some social rewards can not be bartered in exchange (intrinsic
attraction to a person, approval of his opinions, and respect for his
abilities).Because they are spontenaus reactions rather than
calculated means of pleasing him)
• Rewarding actions, can be bartered in social exchange. Social
acceptance in a group to which a person is attracted, instrumental
services of various kinds, and compliance with his wishes constitute
rewards for him even if he knows that they are furnished in
exchange for benefits expected of him.

Conditions of Exchange – 2 –
• Rewards that are instrinsic to the association between individuals,
can be distinguished from extrinsic ones.
• Rewards that individuals may mutually supply for eachother can be
distinguished from those that are necessarily unilateral, which are
manifest in the general respect for a person that bestows superior
prestige on him and in the prevailing compliance with his requests
that bestows superior power on him.

Blau’s Fair Rate of Social Exchange (Fairness,
Justice)
• The relationship between the fair rate and the going rate of social exchange
is somewhat parallel to that between the normal price and the average price
in economic markets.
• But the fair and going rates both rest on social expectations.
• ‗Fair exchange‘ is fundamentally similar to Homans‘ rule of ‗distributive
justice‘. ‗A man in an exchange relation with another will expect that the
rewards of each man be proportional to his costs – the greater the rewards,
the greater the costs – and that the net rewards, or profits, of each man be
proportional to his investments – the greater the investments, the greater the
profit.‘
• For Blau, any item obliges the other to a fair return, and value in excess of
what can be returned must be compensated by compliance. Control over
scarcity translates to power.
•

Blau’s Going Rate of Social Exchange
(Expectations)
• The going rate of exchange in a group gives rise to
expectations that certain returns will be received for certain
services.
• These standards of expectation are not moral norms but merely
anticipations that influence conduct, the normative
expectations that a service that required a certain investment
deserves a certain return are moral standards, the violation of
which evoke social disapproval.

Indifference Curves
Any point on an indifference curve indicates
that the individual is indifferent to whether
he possesses the specified amount of the
first or the specified amount of the second
commodity, that is, that the two have the
same value for him.
10 dollar going to the theatre=having dinner
at a restaurant
2 times theatre, not dinner
2 dinner, not theatre
BUT the more often he has dined out
already, the lower becomes the value of the
dining out relative to going to theatre, in
accordance with the marginal principle.

Indifference Curves
Imagine someone has 1 dollar. Does he
want 3 magazines or 10 candy bars?
• Ten candy bars gives equal value with 3
magazines (if he is indifferent)
• Perhaps the person would be equally
attracted to other combinations. (seven
candy bars-1 magazine)
With these approaches we can draw up an
indifference map (all the choices between
the two alternatives that the person is
indifferent about).
CD – Opportunity line – outer limit of an
individual’s resources.
Point P – Maximum satisfaction
obtainable

Indifference Curves – Bilateral Exchange
Blau uses indifference curves to describe the
interactions between two persons in extrinsic
exchange.
For example, between two workmates, one of
superior knowledge and the other of less. Here
help is exchanged with compliance.
• The exchange is two-sided (bilateral).
• Help is exchanged for compliance.
• Supplies of help and compliance are
entirely controlled by the people giving
them.
• Each person will try to maximize utility by
getting on highest indifference line he can.
CC Line- Contract Line – Blau concludes
that the optimum conditions for exchange are
the points at which the two sets of indifference
curves are tangent to eachother.

Indifference Curves – Exchange in Bilateral
Monopoly
Oa – Consultant
Oh – Colleague who consults
K – problem-solving ability
X – Total problem-solving ability available
OaKa – greater the ability of the expert
H – the compliance each is willing to
express to raise the other‘s status
** Expert applies some of his time and
ability to the problems of the colleague, and
toward the right, showing that the expert‘s
status is raised by the compliance with
which of the colleague reciprocates for the
advice.
Solid indifference curves – expert
Dotted indifference curves - colleague

Price Elasticity
• Proportional change in supply and demand resulting from a change in the
price.This change in turn being affected by changes in demand and supply.
• According to Blau, if a change in supply (or demand) affects the volume of
transactions more than it affects the price of commodity, supply (or
demand) is elastic. If price is more affected than volume, supply (or
demand) is inelastic.
• A sector with high status may have little demand for additional status
because the marginal utility of status is low for that sector. Demand is
price-inelastic
• At the same time, a low-status sector may have increasing or constant
marginal utility for status increments. Demand is price elastic.

Criticisms
• Not just economic but social exchange is induced by pursuit of material
resources (wealth) and/or hedonistic motives (pleasure). As some
exchange theorists (Homans, Emerson) suggest, the economic postulate
of utility maximization is a special case of the general hedonistic ‗law‘
of pleasure optimization, as is loss minimization relative to pain
avoidance.
• Extending exchange theory to societal level is beyond recognition.
Exchange theory is primarily concerned with face-to-face relations.
(Ritzer,1983)

Referances
• Blau, P., (1964), Exchange and Power in Social Life, John Wiley&Sons
• Scott, R.&Calhoun, C. (2004), Peter Michael Blau 1918-2002, Biographical
Memories, Volume 85, The National Academies Press
• Skidmore, W., (1979), Theoretical Thinking in Sociology, Cambridge
University Press
• Spread, P., (1984), Blau's Exchange Theory, Support and the Macrostructure,
The British Journal of Sociology, Vol.35, No.2, pp157-173
• Zafirovski M., (2005), Social Exchange Theory under Scrutiny: A Positive
Critique of its Economic-Behaviourist Formulations, Electronic Journal of
Socialogy
• Wikipedia and other internet sources

Unpacking Employee Responses to
Organizational Exchange Mechanisms: The
Role of Social and Economic Exchange
Perceptions
Linda Jiwen Song, Anne S. Tsui, Kenneth S.
Law, Journal of Management, Vol. 35,
No.1, February 2009, 56-93

Introduction - Exchange Theory
• Specifies that employees respond to their employer differently depending on the
treatment they receive.
• Treatments can create
o Social exchange relationship (long term orientation, trust, socio-emotional
resources)
o Economic exchange relationship (short term exchange, economic or
materialistic resources)
(Blau,1964; Lynch&Barksdale,2006)

Aim
• To unpack the exchange process by examining whether specific
organisational-level mechanism relate to employees‘ perceptions of social
and economic exchange relationships
• And how this perception relates to employees‘ responses in terms of
commitment to the organisation and in-role or extra-role performance.
• To examine multiple exchange mechanism and related exchange
perceptions between organisations an.d employees

Social and Economic Exchange in
Employee-Organisation Linkage
• Blau (1964) identified two kinds of exchange relationships.
o Social exchange: The focus is on socio-emotional resources over a lengthy period.
o Economic exchange: The focus is on short-term exchanges of material or economic
goods.
• Organisation can define the nature of the exchange relationship through
formal employement contracts.
• Or can also create this relationship indirectly through organisational culture
or leadership behavious.

Social and Economic Exchange in
Employee-Organisation Linkage

Organisational Exchange Mechanisms as
Antecedents
• Leadership
The ability to inspire followers to achieve collective goals (Yukl, 2002).
Transformational Relationship, inspires followers to focus on an extended relationship
with the organisation.
Transactional Leadership, focuses on immediate rewards or punishments for job
performance.
• Organisational Culture
A pattern of beliefs and expectations shared by organisation members (Schwartz and
Davis, 1981).
A firms reliance on
- either values to influence employees (the reasons for doing certain things)
- or rules and procedures to direct employees‘ actions ( the ways to do certain
things) (Cameron&Freeman, 1991)

Organisational Exchange Mechanisms as
Antecedents
• Employment Approaches
Formal and informal, economic, social, and psychological connections
between employees and employers (Tsui&Wang,2002)
Mutual investment approach, a long-term and extensive engagement
between the employer and the employee.
Quasi-spot contract approach, a short term and narrow exchange between
the two parties.

Perceptions of Exchange Relationships as
Mediators
• Social Exchange
Entails a high level of trust, provides extensive investment in the employee,
focuses on a long-term relationship, and emphasizes the socio-emotional
aspects of the relationship (Shore et al., 2006).
• Economic Exchange
Entails a low level of trust, short-term, close-ended, well-defined
obligarions.Emphasis is on narrow financial obligations (e.g. Pay and benefits)
without any long-term investments (e.g., employment security or career
planning)

Affective Commitment, Performance, and Organisational
Citizenship Behaviour as Employee Responses
• Affective Commitment
Regarded as a reflection of the psychological bonds of employees with the
organisation (Meyer&Allen, 1997).
Support and fairness from the organisation can contribute to employee‘s affective
commitment.
• Job Performance
Fulfilling task requirements (task performance), making contributions that go
beyond specified task accomplishments.
Rewards leads to higher employee task performance.
• Organisational Citizenship Behavior
Perceptions of organisational fairness and leader support elicit OCB from
employees.

Hypotheses Linking CEO Leadership Styles to Exchange
Relationship Perceptions and Responses by Employees

Hypotheses Linking Organisational Culture to Exchange
Relationship Perceptions and Employee Responses

Hypotheses Linking Employment Approaches to Exchange
Relationship Perceptions and Employee Responses

Study Context
• Tested in China.
• Conducted two studies
o Study 1 had the goal of validating the measures of the employement
approaches, leadership behaviour, organisational culture, exchange
perceptions, and affective commitment constructs.
o Study 2 included the measures of employee performance and
citizenship behaviour and tested the hypotheses.

Study 1 – Scale Validation
• Sample and Procedures
• Two samples
Sample 1, to validate the employemnt approach, leadership style, exchange
relationship, and affective commitment scales, 1,128 MBA students in 11
Chinese universities, response rate 90%
Sample 2, to validate organisational culture scale, 906 executives. Response
rate 95%

Study 1 – Scale Validation
• Measures
• Waldman (2001) transformational and transactional leadership items from
Multifactor Leadership Questionnaire
• Combination of O‘Relly and colleagues‘ (1991) organisational culture scale and
Tsui, Wang&Xin scale
• Employment approach scale (Wang et al., 2003)
• Scales by Shore et al. (2006) to measure social and economic exchange
perceptions
• Affective commitment scale by Meyer and Allen (1997)
• Confirmatory Factor Analyses carried out. The scale validation study
provided supportive evidence for the factor structure of all the measures.

Study 2 – Hypothesis Testing
• Sample and Procedures
• 441 middle managers and 141 top managers in 31 companies in China.
• Top management team members described their CEO‘s leadership style.
• Middle managers described the organisational culture and reported their
perceptions of their exchange relationships with and commitment to, the
firm.

Study 2 – Hypothesis Testing
• Measures
• Task Performance Scale of Tsui (1997)
• Organisational Citizenship behaviour by Lam, Hui, and Law (1999)
• Control variables firm size, CEO‘s age and gender, also middle managers‘
age, gender, and educational level.

Results on Hypotheses 1a to 1 d
• H1a is fully supported.
• H1b is not supported.
• H1c is partially supported. A perception of social exchange mediates the
relationship between transformational leadershio and affective commitment
(full mediation) and task performance (partial mediation) but not OCB.
• H1d not supported.

Results on Hypotheses 2a to 2d
• H2a is fully supported.
• H2b is supported.
• H2c is partially supported with social exchange mediating the influence of
integrative culure on affective commitment and task performance but not
on OCB.
• H2d is partially supported.

Results on Hypotheses 3a to 3d
• H3a is supported.
• H3b is fully supported.
• H3c is partially supported on commitment and task performance but not on
OCB.
• H3d is partially supported on affective commitment and OCB not on task
performance.

Discussion
• Social or economic exchange perceptions may not fully capture the
psychological experience of employees influenced by various forms of
organisational exchange mechanisms.
• Some other mediators may include person-organisation fit, organisational
identification, or identification with the leadership.

Blau's Social Exchange Theory

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