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Inside Organizations: Pricing, Politics, and Path Dependence

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  • Robert S. Gibbons

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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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 661465000000000249.

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Date of creation: 08 Oct 2010
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Handle: RePEc:cla:levarc:661465000000000249

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Cited by:
  1. Andreas Blume & April M. Franco & Paul Heidhues, 2011. "Dynamic coordination via organizational routines," ESMT Research Working Papers ESMT-11-10, ESMT European School of Management and Technology.
  2. Matthias Fahn & Valeria Merlo & Georg Wamser, 2014. "The Commitment Role of Equity Financing," CESifo Working Paper Series 4841, CESifo Group Munich.
  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. Steven Callander, 2011. "Searching and Learning by Trial and Error," American Economic Review, American Economic Association, vol. 101(6), pages 2277-2308, October.
  5. Jones, Michael D., 2012. "Teacher Behavior under Performance Pay Incentives," MPRA Paper 43892, University Library of Munich, Germany.

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