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Bridging Contested Terrain: Linking Incentive-Based and Learning Perspectives on Organizational Evolution

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  • Giovanni Dosi
  • Daniel 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 which require the coordination of large numbers of interdependent elements, organization face a decomposition problem which has both a cognitive dimension and a reward and incentive dimension. The former relates 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 labor and determines which solutions are generated and become candidates for selection. The reward and incentive dimension defines the selection environment which chooses over alternative solutions. The model we present studies the interrelationships between these two dimensions, in particular we compare the problem solving performance of organizations characterized by various decompositions (of coarser of finer grain) and various reward schemes (at the level of the entire organization, team and individual). Moreover we extend our model in a still tentative fashion - in order to account for such power and authority relationships (giving some parts of the organization the power to stop changes in other parts), and to discuss the co-evolution of problem representations and incentive mechanisms.

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Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2001/20.

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Date of creation: 31 Dec 2001
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Handle: RePEc:ssa:lemwps:2001/20

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  1. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1120-71, September.
  2. Cohen, Michael D, et al, 1996. "Routines and Other Recurring Action Patterns of Organizations: Contemporary Research Issues," Industrial and Corporate Change, Oxford University Press, vol. 5(3), pages 653-98.
  3. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  4. Winter, Sidney G, 1988. "On Coase, Competence, and the Corporation," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 163-80, Spring.
  5. Marengo, Luigi, et al, 2000. "The Structure of Problem-Solving Knowledge and the Structure of Organizations," Industrial and Corporate Change, Oxford University Press, vol. 9(4), pages 757-88, December.
  6. Radner, Roy, 1986. "The Internal Economy of Large Firms," Economic Journal, Royal Economic Society, vol. 96(380a), pages 1-22, Supplemen.
  7. Scott E. Page, 1996. "Two measures of difficulty (*)," Economic Theory, Springer, vol. 8(2), pages 321-346.
  8. Carliss Y. Baldwin & Kim B. Clark, 2000. "Design Rules, Volume 1: The Power of Modularity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024667, December.
  9. Page, Scott E, 1996. "Two Measures of Difficulty," Economic Theory, Springer, vol. 8(2), pages 321-46, August.
  10. Daniel A. Levinthal, 1997. "Adaptation on Rugged Landscapes," Management Science, INFORMS, vol. 43(7), pages 934-950, July.
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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 93, SPRU - Science and Technology Policy Research, University of Sussex.
  2. Geoffrey Hodgson & Kainan Huang, 2012. "Evolutionary game theory and evolutionary economics: are they different species?," Journal of Evolutionary Economics, Springer, vol. 22(2), pages 345-366, April.
  3. Frenken, K. & Nuvolari, A., 2003. "The Early Development of the Steam Engine: An Evolutionary Interpretation using Complexity Theory," Eindhoven Center for Innovation Studies (ECIS) working paper series 03.15, Eindhoven Center for Innovation Studies (ECIS).
  4. Valente Houhannisian, 2004. "Modeling Directod Local Search Strategies on Technology Landscapes and Breadth," Quaderni DISA 091, Department of Computer and Management Sciences, University of Trento, Italy, revised 17 Jun 2008.
  5. Bogliacino, Francesco & Rampa, Giorgio, 2014. "Expectational bottlenecks and the emerging of new organizational forms," Structural Change and Economic Dynamics, Elsevier, vol. 29(C), pages 28-39.
  6. Kerstin Press, 2007. "When does defection pay?," Journal of Economic Interaction and Coordination, Springer, vol. 2(1), pages 67-84, June.
  7. Giovanni Dosi, 2012. "Economic Coordination and Dynamics: Some Elements of an Alternative "Evolutionary" Paradigm," LEM Papers Series 2012/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  8. Karén Hovhannissian & Marco Valente, 2004. "Modeling Directed Local Search Strategies on Technology Landscapes: Depth and Breadth," ROCK Working Papers 028, Department of Computer and Management Sciences, University of Trento, Italy, revised 17 Jun 2008.
  9. 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 2010/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  10. Giovanni Dosi & Marco Faillo & Luigi Marengo, 2003. "Organizational Capabilities, Patterns of Knowledge Accumulation and Governance Structures in Business Firms. An Introduction," LEM Papers Series 2003/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  11. Kerstin Press, 2006. "Divide to conquer? The Silicon Valley - Boston 128 case revisited," Papers in Evolutionary Economic Geography (PEEG) 0610, Utrecht University, Section of Economic Geography, revised Dec 2006.
  12. 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, vol. 14(5), pages 775-791, October.
  13. Nathalie Lazaric & Alain Raybaut, 2007. "Knowledge, Hierarchy and incentives: Why human resource policy and trust matter," Post-Print hal-00453292, HAL.
  14. Mariacristina Piva & Marco Vivarelli, 2007. "Is demand-pulled innovation equally important in different groups of firms?," Cambridge Journal of Economics, Oxford University Press, vol. 31(5), pages 691-710, September.
  15. Rebecca Henderson & Sarah Kaplan, 2005. "Inertia and Incentives: Bridging Organizational Economics and Organizational Theory," NBER Working Papers 11849, National Bureau of Economic Research, Inc.
  16. Karén Hovhannisian & Marco Valente, 2005. "Modeling Directed Local Search Strategies on Technology," Computational Economics 0507001, EconWPA.
  17. Agnès Festré & Luca Giustiniano, 2011. "Relational capital and appropriate incentives," Post-Print halshs-00721526, HAL.
  18. Kerstin Wolter, 2005. "Divide and Conquer? Decentralisation, Co-ordination and Cluster Survival," DRUID Working Papers 05-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  19. Agnès Festré & Nathalie Lazaric, 2007. "Routines and leadership in Schumpeter and von Mises' analysis of economic change," Post-Print halshs-00271338, HAL.
  20. Giovanni Dosi & Daniel Levinthal & Luigi Marengo, 2002. "The Uneasy Organizational Matching Between Distribution of Knowledge, Divisionof Labor and Incentive Governance," LEM Papers Series 2002/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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