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Inside Organizations: Pricing, Politics, and Path Dependence

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  • Robert Gibbons

    ()
    (Sloan School and Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142, and NBER)

Abstract

When economists have considered organizations, much attention has focused on the boundary of the firm, rather than its internal structures and processes. In contrast, this review sketches three approaches to the economic theory of internal organization—one substantially developed, another rapidly emerging, and a third on the horizon. The first approach (pricing) applies Pigou's prescription: If markets get prices wrong, then the economist's job is to fix the prices. The second approach (politics) considers environments where important actions inside organizations simply cannot be priced, so power and control become central. Finally, the third approach (path dependence) complements the first two by shifting attention from the between variance to the within. That is, rather than asking how organizations confronting different circumstances should choose different structures and processes, the focus here is on how path dependence can cause persistent performance differences among seemingly similar enterprises.

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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 2 (2010)
Issue (Month): 1 (09)
Pages: 337-365

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Handle: RePEc:anr:reveco:v:2:y:2010:p:337-365

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Keywords: relational contracts; productivity differences;

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References

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Citations

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Cited by:
  1. Blume, Andreas & Franco, April Mitchell & Heidhues, Paul, 2011. "Dynamic Coordination via Organizational Routines," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 355, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Steven Callander, 2011. "Searching and Learning by Trial and Error," American Economic Review, American Economic Association, vol. 101(6), pages 2277-2308, October.
  3. Bruce Owen, 2011. "Antitrust and Vertical Integration in “New Economy” Industries with Application to Broadband Access," Review of Industrial Organization, Springer, vol. 38(4), pages 363-386, June.
  4. Matthias Fahn & Valeria Merlo & Georg Wamser, 2014. "The Commitment Role of Equity Financing," CESifo Working Paper Series 4841, CESifo Group Munich.
  5. Jones, Michael D., 2012. "Teacher Behavior under Performance Pay Incentives," MPRA Paper 43892, University Library of Munich, Germany.

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