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Preferences and organization structure: Toward behavioral economics micro-foundations of organizational analysis

  • Ben-Ner, Avner

The paper proposes micro-foundations for organizational analysis grounded in behavioral economics. As Simon (1985) pointed out it, “nothing is more fundamental in setting our research agenda and informing our research methods than our view of the nature of the human beings whose behavior we are studying.” The paper examines optimal workplace-level organization structure (decision-making delegation, incentives and monitoring) relative to four common types of individuals, just selfish, civil, decent and dedicated employees (characterized in terms of their social preferences, self- versus other-regarding, reciprocity, trusting and trustworthiness). Four principal propositions arise from this analysis. (1) Mismatch between organization structure and employee preferences reduces productivity and profits. (2) The less prosocial employees in an organization, the more complex and sophisticated and therefore expensive the organization structure must be. (3) The less complex and less interdependent are employees’ tasks, the less dependent is organization structure on employee social preferences. (4) Heterogeneity of preferences poses a design a dynamic challenge as practices generally have to be tailored to one type of employee, and will be associated with exit of other types or adverse-selection by types that will seek to exploit it.

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Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

Volume (Year): 46 (2013)
Issue (Month): C ()
Pages: 87-96

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Handle: RePEc:eee:soceco:v:46:y:2013:i:c:p:87-96
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620175

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  1. Guido Tabellini, 2008. "The Scope of Cooperation: Values and Incentives," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 905-950, August.
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  20. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
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  23. Bruno S. Frey & Margit Osterloh, . "Yes, Managers Should be Paid Like Bureaucrats," IEW - Working Papers 187, Institute for Empirical Research in Economics - University of Zurich.
  24. Ben-Ner, Avner & Halldorsson, Freyr, 2010. "Trusting and trustworthiness: What are they, how to measure them, and what affects them," Journal of Economic Psychology, Elsevier, vol. 31(1), pages 64-79, February.
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  27. Buchan, Nancy R. & Johnson, Eric J. & Croson, Rachel T.A., 2006. "Let's get personal: An international examination of the influence of communication, culture and social distance on other regarding preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 60(3), pages 373-398, July.
  28. Shaun P. Hargreaves Heap & Daniel John Zizzo, 2009. "The Value of Groups," American Economic Review, American Economic Association, vol. 99(1), pages 295-323, March.
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  30. Roland G. Fryer & Matthew O. Jackson, 2002. "Categorical Cognition: A Psychological Model of Categories and Identification in Decision Making," Microeconomics 0211002, EconWPA.
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  34. Roberto Burlando & Francesco Guala, 2005. "Heterogeneous Agents in Public Goods Experiments," Experimental Economics, Springer, vol. 8(1), pages 35-54, April.
  35. Avner Ben-Ner & Matthew Ellman, 2013. "The contributions of behavioural economics to understanding and advancing the sustainability of worker cooperatives," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 2(1), pages 75-100, August.
  36. Ben-Ner, Avner & McCall, Brian P. & Stephane, Massoud & Wang, Hua, 2009. "Identity and in-group/out-group differentiation in work and giving behaviors: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 153-170, October.
  37. Avner Ben-Ner & Stephanie Lluis, . "Learning: What and How? An Empirical Study of Adjustments in Workplace Organization Structure," Working Papers 0407, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  38. Casari, Marco & Plott, Charles R., 2003. "Decentralized management of common property resources: experiments with a centuries-old institution," Journal of Economic Behavior & Organization, Elsevier, vol. 51(2), pages 217-247, June.
  39. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
  40. Jed DeVaro & Fidan Ana Kurtulus, 2010. "An An Empirical Analysis of Risk, Incentives and the Delegation of Worker Authority," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(4), pages 641-661, July.
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