Functional Substitution and Particularized Trust: Governance Mechanisms in Hourglass Socio‐Economic Systems

ABSTRACT Governance research shows that cooperation can persist despite dysfunctional state institutions, often through trust‐based mechanisms. This paper extends these debates by examining a complex collective action problem: the engagement of small‐ and medium‐sized enterprises (SMEs) in vocational education and training (VET) in post‐communist contexts. Drawing on the concept of “hourglass societies”, where trust concentrates among elites and local actors but is weak at the meso‐level, the paper argues that VET schools act as functional substitutes to meso‐level business associations by leveraging particularized trust and local networks. Evidence from Albania and Slovakia, based on 62 interviews and network analysis, demonstrates how face‐to‐face interaction, reciprocity, and localized knowledge enable SMEs to overcome prisoner's dilemma dynamics. These findings contribute to governance theory by showing how functional substitution and micro‐level trust structures sustain cooperation in fragmented socio‐economic systems, offering insights for designing policies for collective good provision such as education politics beyond Western contexts.