The Political Economy of Rating in Germany: A Systematic Process Analysis

This paper argues that an in-depth study of the causes and patterns of the institutionalization of rating in the German financial system offers fresh insights into change in the major socio-economic institutions in advanced capitalism. Using the method of systematic process analysis, it demonstrates that the proliferation of rating resulted from a preference change on the part of large industrial companies and banks. Faced with losses on their old business models they began using external and internal rating. This finding fits better with the empirical expectations of behavioral institutionalism than with historical or sociological institutionalism. With Germany as a least-likely case for successfully implementing rating, the study’s main lesson is that historical and sociological institutionalism may benefit from giving up reservations about behavioral economics as this approach to rating provides us with some more precise accounts of the reasons for preference shifts.