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Dynamic incentives in organizations: Success and inertia

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  • Ruckes, Martin
  • Rønde, Thomas
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    Abstract

    We present a dynamic model in which an employee of a firm searches for business projects in a changing environment. It is costly to induce the employee who found a successful project in the past period to search for a new project. Past success can therefore result in profitreducing corporate inertia. Still, when the firm chooses to counteract the reluctance to search by increasing the power of the incentives, it stimulates initial search efforts and results in higher profits. Corporate restructuring and increasing the employee's authority over time are means to alleviate inertia but may undermine initial search incentives. --

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    Bibliographic Info

    Paper provided by Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering in its series Working Paper Series in Economics with number 7.

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    Date of creation: 2010
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    Handle: RePEc:zbw:kitwps:7

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    Web page: http://www.wiwi.kit.edu/
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    Keywords: incentives in organizations; inertia; innovation; restructuring;

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    References

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    1. Fosfuri, Andrea & Rønde, Thomas, 2009. "Leveraging resistance to change and the skunk works model of innovation," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 72(1), pages 274-289, October.
    2. Denis Gromb, 2007. "Cultural Inertia and Uniformity in Organizations," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 23(3), pages 743-771, October.
    3. Juan D. Carrillo & Denis Gromb, 2005. "Culture in Organizations: Inertia and Uniformity," Levine's Bibliography 172782000000000053, UCLA Department of Economics.
    4. Eriksson, Tor & Ortega, Jaime, 2004. "The Adoption of Job Rotation: Testing the Theories," Working Papers, University of Aarhus, Aarhus School of Business, Department of Economics 04-3, University of Aarhus, Aarhus School of Business, Department of Economics.
    5. Meyer, Margaret A & Milgrom, Paul & Roberts, Donald John, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," CEPR Discussion Papers, C.E.P.R. Discussion Papers 665, C.E.P.R. Discussion Papers.
    6. Boyer, Marcel & Robert, Jacques, 2006. "Organizational inertia and dynamic incentives," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 59(3), pages 324-348, March.
    7. McPherson, Michael S. & Winston, Gordon C., 1983. "The economics of academic tenure : A relational perspective," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 4(2-3), pages 163-184.
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    Cited by:
    1. Oliver Baumann & Nils Stieglitz, 2011. "Motivating Organizational Search," DRUID Working Papers, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 11-08, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.

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