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Organizational Economics with Cognitive Costs

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  • Prat, Andrea
  • Garicano, Luis

Abstract

Organizational economics has advanced along two parallel tracks, one concerned with motivating agents with diverging objectives, the other--less developed--with coordinating agents under cognitive limits. This survey focuses on the second strand and attempts to bring the two strands together. Organizations are viewed as responses to the cognitive costs faced by their (potential) members. We review existing approaches such as team theory, hierarchies of processors, organizational languages and knowledge hierarchies and we argue that they can help us address an array of important organizational issues. We also review recent developments in the application of these ideas: exploiting complexity measures, combining team theory and contract theory, applying organization theories in labor economics, and using these theories to interpret the wealth of activity data that is becoming available.

Suggested Citation

  • Prat, Andrea & Garicano, Luis, 2011. "Organizational Economics with Cognitive Costs," CEPR Discussion Papers 8372, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8372
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    References listed on IDEAS

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    Cited by:

    1. Oriana Bandiera & Renata Lemos & Andrea Prat & Raffaella Sadun, 2018. "Managing the Family Firm: Evidence from CEOs at Work," The Review of Financial Studies, Society for Financial Studies, vol. 31(5), pages 1605-1653.
    2. Calvó-Armengol, Antoni & , & ,, 2015. "Communication and influence," Theoretical Economics, Econometric Society, vol. 10(2), May.
    3. Luis Garicano & Yanhui Wu, 2012. "Knowledge, Communication, and Organizational Capabilities," Organization Science, INFORMS, vol. 23(5), pages 1382-1397, October.
    4. Bandiera, Oriana & Prat, Andrea & Sadun, Raffaella & Wulf, Julie, 2012. "Span of control and span of activity," LSE Research Online Documents on Economics 121772, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Activity data; Cognitive cost; Organization; Organizational language; Team theory;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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