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Bridging contested terrain: linking incentive-based and learning perspectives on organizational evolution

  • Giovanni Dosi
  • Daniel A. Levinthal
  • Luigi Marengo

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 that require the co-ordination of large numbers of interdependent elements, organizations face a decomposition problem that has both cognitive dimensions and reward and incentive dimensions. The former relate 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 labour and determines which solutions are generated and become candidates for selection. The reward and incentive dimensions fundamentally shape the selection environment which chooses over alternative solutions. The model we present begins to study the interrelationships between these two domains of analysis: in particular, we compare the problem-solving performance of organizations characterized by various decompositions (of coarser or finer grain) and various reward schemes (at the level of the entire organization, team and individual). Moreover we investigate extensions of our model in order to account for (admittedly rudimentary) power and authority relationships (giving some parts of the organization the power to stop changes in other parts), and discuss the interaction of problem representations and incentive mechanisms. Copyright 2003, Oxford University Press.

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Article provided by Oxford University Press in its journal Industrial and Corporate Change.

Volume (Year): 12 (2003)
Issue (Month): 2 (April)
Pages: 413-436

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Handle: RePEc:oup:indcch:v:12:y:2003:i:2:p:413-436
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  1. Michael D. Cohen & Roger Burkhart & Giovanni Dosi & Massimo Egidi & Luigi Marengo & Massimo Warglien & Sidney Winter & with comments by Benjamin Coriat, 1995. "Routines and Other Recurring Action Patterns of Organizations: Contemporary Research Issues," Working Papers 95-11-101, Santa Fe Institute.
  2. 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.
  3. Page, Scott E, 1996. "Two Measures of Difficulty," Economic Theory, Springer, vol. 8(2), pages 321-46, August.
  4. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  5. Radner, Roy, 1986. "The Internal Economy of Large Firms," Economic Journal, Royal Economic Society, vol. 96(380a), pages 1-22, Supplemen.
  6. 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.
  7. 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, June.
  8. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1120-71, September.
  9. Scott E. Page, 1996. "Two measures of difficulty (*)," Economic Theory, Springer, vol. 8(2), pages 321-346.
  10. Daniel A. Levinthal, 1997. "Adaptation on Rugged Landscapes," Management Science, INFORMS, vol. 43(7), pages 934-950, July.
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