Resting on Laurels: A Theory of Inertia in Organizations
AbstractWe present a model where the employees of a firm have to search for profitable business projects in a changing environment. Employees who have found a successful project in the past period are shown to be reluctant to search for new and better projects leading to corporate inertia. This reduces the firm’s profits in the present period. Still, inertia can in some situations increase overall profits, because it raises the employees’ initial incentive to find successful projects. Reorganization and gradually reducing control over the employees’ search efforts are means to overcome inertia. However, optimal policies are not always time-consistent. This leads to too much reorganization and to too little control reduction when the firm has no commitment power.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2003-06.
Length: 36 pages
Date of creation: Oct 2003
Date of revision:
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More information through EDIRC
incentives in organizations; inertia; innovation; reorganization;
Find related papers by JEL classification:
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation
- M54 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Management
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-16 (All new papers)
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