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Bridging contested terrain: linking incentive-based and learning perspectives on organizational evolution

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  • Giovanni Dosi
  • Daniel A. Levinthal
  • Luigi Marengo

Abstract

In this paper we present a general model of organizational problem-solving in which we explore the relationship between problem complexity, decentralization of tasks and reward schemes. When facing complex problems that require the co-ordination of large numbers of interdependent elements, organizations face a decomposition problem that has both cognitive dimensions and reward and incentive dimensions. The former relate to the decomposition and allocation of the process of generation of new solutions: since the search space is too vast to be searched extensively, organizations employ heuristics for reducing it. The decomposition heuristic takes the form of division of cognitive labour and determines which solutions are generated and become candidates for selection. The reward and incentive dimensions fundamentally shape the selection environment which chooses over alternative solutions. The model we present begins to study the interrelationships between these two domains of analysis: in particular, we compare the problem-solving performance of organizations characterized by various decompositions (of coarser or finer grain) and various reward schemes (at the level of the entire organization, team and individual). Moreover we investigate extensions of our model in order to account for (admittedly rudimentary) power and authority relationships (giving some parts of the organization the power to stop changes in other parts), and discuss the interaction of problem representations and incentive mechanisms. Copyright 2003, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Industrial and Corporate Change.

Volume (Year): 12 (2003)
Issue (Month): 2 (April)
Pages: 413-436

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Handle: RePEc:oup:indcch:v:12:y:2003:i:2:p:413-436

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  1. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, Econometric Society, vol. 67(4), pages 741-782, July.
  2. Page, Scott E, 1996. "Two Measures of Difficulty," Economic Theory, Springer, Springer, vol. 8(2), pages 321-46, August.
  3. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 26(3), pages 1120-71, September.
  4. Carliss Y. Baldwin & Kim B. Clark, 2000. "Design Rules, Volume 1: The Power of Modularity," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262024667, December.
  5. Radner, Roy, 1986. "The Internal Economy of Large Firms," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(380a), pages 1-22, Supplemen.
  6. Luigi Marengo & Giovanni Dosi & Paolo Legrenzi & Corrado Pasquali, 1999. "The structure of problem-solving knowledge and the structure of organisations," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 1999/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  7. Daniel A. Levinthal, 1997. "Adaptation on Rugged Landscapes," Management Science, INFORMS, INFORMS, vol. 43(7), pages 934-950, July.
  8. Cohen, Michael D, et al, 1996. "Routines and Other Recurring Action Patterns of Organizations: Contemporary Research Issues," Industrial and Corporate Change, Oxford University Press, Oxford University Press, vol. 5(3), pages 653-98.
  9. Scott E. Page, 1996. "Two measures of difficulty (*)," Economic Theory, Springer, Springer, vol. 8(2), pages 321-346.
  10. Winter, Sidney G, 1988. "On Coase, Competence, and the Corporation," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 4(1), pages 163-80, Spring.
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Cited by:
  1. Stefano Brusoni & Keith Pavitt, 2003. "Problem solving and the co-ordination of innovative activities," SPRU Working Paper Series, SPRU - Science and Technology Policy Research, University of Sussex 93, SPRU - Science and Technology Policy Research, University of Sussex.
  2. Karén Hovhannissian & Marco Valente, 2004. "Modeling Directed Local Search Strategies on Technology Landscapes: Depth and Breadth," ROCK Working Papers, Department of Computer and Management Sciences, University of Trento, Italy 028, Department of Computer and Management Sciences, University of Trento, Italy, revised 17 Jun 2008.
  3. Nathalie Lazaric & Alain Raybaut, 2007. "Knowledge, Hierarchy and incentives: Why human resource policy and trust matter," Post-Print, HAL hal-00453292, HAL.
  4. Agnès Festré & Nathalie Lazaric, 2007. "Routines and leadership in Schumpeter and von Mises' analysis of economic change," Post-Print, HAL halshs-00271338, HAL.
  5. Kerstin Wolter, 2005. "Divide and Conquer? Decentralisation, Co-ordination and Cluster Survival," DRUID Working Papers, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 05-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  6. Frenken, K. & Nuvolari, A., 2003. "The Early Development of the Steam Engine: An Evolutionary Interpretation using Complexity Theory," Working Papers, Eindhoven Center for Innovation Studies 03.15, Eindhoven Center for Innovation Studies.
  7. Kerstin Press, 2007. "When does defection pay?," Journal of Economic Interaction and Coordination, Springer, Springer, vol. 2(1), pages 67-84, June.
  8. Geoffrey Hodgson & Kainan Huang, 2012. "Evolutionary game theory and evolutionary economics: are they different species?," Journal of Evolutionary Economics, Springer, Springer, vol. 22(2), pages 345-366, April.
  9. Agnès Festré & Luca Giustiniano, 2011. "Relational capital and appropriate incentives," Post-Print, HAL halshs-00721526, HAL.
  10. Mariacristina Piva & Marco Vivarelli, 2007. "Is demand-pulled innovation equally important in different groups of firms?," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 31(5), pages 691-710, September.
  11. Giorgio Rampa & Francesco Bogliacino, 2012. "Expectational Bottlenecks and the Emerging of New Organizational Forms," Quaderni di Dipartimento, University of Pavia, Department of Economics and Quantitative Methods 159, University of Pavia, Department of Economics and Quantitative Methods.
  12. Giovanni Dosi & Daniel Levinthal & Luigi Marengo, 2002. "The Uneasy Organizational Matching Between Distribution of Knowledge, Divisionof Labor and Incentive Governance," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2002/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  13. Markus C. Becker & Nathalie Lazaric & Richard R. Nelson & Sidney G. Winter, 2005. "Applying organizational routines in understanding organizational change," Industrial and Corporate Change, Oxford University Press, Oxford University Press, vol. 14(5), pages 775-791, October.
  14. Rebecca Henderson & Sarah Kaplan, 2005. "Inertia and Incentives: Bridging Organizational Economics and Organizational Theory," NBER Working Papers 11849, National Bureau of Economic Research, Inc.
  15. Giovanni Dosi & Marco Faillo & Luigi Marengo, 2003. "Organizational Capabilities, Patterns of Knowledge Accumulation and Governance Structures in Business Firms. An Introduction," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2003/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  16. Kerstin Press, 2006. "Divide to conquer? The Silicon Valley - Boston 128 case revisited," Papers in Evolutionary Economic Geography (PEEG), Utrecht University, Section of Economic Geography 0610, Utrecht University, Section of Economic Geography, revised Dec 2006.
  17. Luigi Marengo & Corrado Pasquali, 2010. "How to get what you want when you do not know what you want. A model of incentives, organizational structure and learning," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2010/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  18. Valente Houhannisian, 2004. "Modeling Directod Local Search Strategies on Technology Landscapes and Breadth," Quaderni DISA, Department of Computer and Management Sciences, University of Trento, Italy 091, Department of Computer and Management Sciences, University of Trento, Italy, revised 17 Jun 2008.
  19. Karén Hovhannisian & Marco Valente, 2005. "Modeling Directed Local Search Strategies on Technology," Computational Economics, EconWPA 0507001, EconWPA.
  20. Giovanni Dosi, 2012. "Economic Coordination and Dynamics: Some Elements of an Alternative "Evolutionary" Paradigm," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2012/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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