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Dynamic incentives in organizations: Success and inertia

  • Ruckes, Martin
  • Rønde, Thomas
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    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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    File URL: http://econstor.eu/bitstream/10419/41473/1/638539129.pdf
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    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
    Date of revision:
    Handle: RePEc:zbw:kitwps:7
    Contact details of provider: Web page: http://www.wiwi.kit.edu/

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    1. Meyer, Margaret & Milgrom, Paul & Roberts, John, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 9-35, Spring.
    2. Carrillo, Juan D & Gromb, Denis, 2002. "Cultural Inertia and Uniformity in Organizations," CEPR Discussion Papers 3613, C.E.P.R. Discussion Papers.
    3. Juan D. Carrillo & Denis Gromb, 2005. "Culture in Organizations: Inertia and Uniformity," Levine's Bibliography 172782000000000053, UCLA Department of Economics.
    4. McPherson, Michael S. & Winston, Gordon C., 1983. "The economics of academic tenure : A relational perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 4(2-3), pages 163-184.
    5. Boyer, Marcel & Robert, Jacques, 2006. "Organizational inertia and dynamic incentives," Journal of Economic Behavior & Organization, Elsevier, vol. 59(3), pages 324-348, March.
    6. Fosfuri, Andrea & Rønde, Thomas, 2009. "Leveraging resistance to change and the skunk works model of innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 274-289, October.
    7. Tor Eriksson & Jaime Ortega, 2006. "The adoption of job rotation: Testing the theories," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 59(4), pages 653-666, July.
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