It is common to define a network organization as one that is fast and flexible in adapting to changes in the underlying environment. But besides the short-run advantages of adaptability, fast changes in the structure of the organization can also be detrimental in the longer run. This happens, in particular, because agents need to depend widely on that structure to channel appropriately (and thus speed up) search. I discuss the trade-off between adaptability and structural stability in a changing environment where, if the structure of the organization adjusts, information on the exact nature of the change becomes known only with some lag. The main conclusion obtained is that, as environment becomes more volatile, the optimal mode of the organization sharply switches from being totally flexible to being completely rigid, i.e. no intermediate configurations are essentially ever optimal. This has stark implications on the dichothomy of stability versus change that has been highlighted by recent organization literature.
|Date of creation:||2008|
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- Timothy van Zandt, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 633-658.
- Timothy Van Zandt & Roy Radner, 1998. "Real-Time Decentralized Information Processing and Returns to Scale," Discussion Papers 1233, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Patrick Bolton & Mathias Dewatripont, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 809-839.
- Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
- Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-1146, September.
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