Organizational Economics

Daniel V. Barron is associate professor of strategy at Northwestern University’s Kellogg School of Management. Robert S. Gibbons is the Sloan Distinguished Professor of Management at MIT’s Sloan School of Management and professor in MIT’s Department of Economics. His books include (with John Roberts) The Handbook of Organizational Economics (Princeton). Michael L. Powell is professor of strategy at Northwestern University’s Kellogg School of Management.

• FiguresTables1. Organizational Economics1.1. A Governance Mindset1.2. Early Contributions to Organizational Economics (with Implications for Today)1.2.1. Incomplete Contracts1.2.2. Internal Organization1.2.3. External Organization1.2.4. Informal Governance (Within and Between Organizations)1.2.5. The Performance of Organizations (Within and Between Organizations)1.2.6. Conclusion2. Incentives2.1. Pay for Performance2.1.1. The Multitask Problem—“You Get What You Pay For”2.1.2. Limited Liability and the Motivation–Rent Extraction Tradeoff2.1.3. Risk Aversion and the Motivation–Risk Allocation Tradeoff2.1.4. Moral Hazard in Teams2.2. Incentive Systems2.3. Incentives Beyond Formal Instruments—Career Concerns2.4. Conclusion2.5. Problems3. Control3.1. A Framework and a Benchmark3.2. The Adaptation Model3.3. The Property-Rights Model3.4. Control under Asymmetric Information3.4.1. The Adaptation Model with Asymmetric Information3.4.2. The Delegation Model3.5. Conclusion3.6. Problems4. Influence4.1. Strategic Communication4.1.1. Cheap Talk Can Be Credible When Preferences Are Partially Aligned4.1.2. Verifiable Information May be Selectively Disclosed in Equilibrium4.1.3. Costly Messages can Credibly Signal Private Information4.2. Strategic Information Management4.2.1. (Bayesian) Persuasion through Public Information Structures4.2.2. Information Structures That Are Costly to Manipulate4.3. Organizational Responses to Influence4.3.1. Delegation as a Response to Strategic Communication?4.3.2. Limiting Discretion to Manage Influence Costs4.4. Conclusion4.5. Problems5. Relationships5.1. Relational Incentive Contracts5.2. Dynamic Enforcement in Richer Environments5.2.1. Relational Adaptation5.2.2. Imperfect Public Monitoring5.2.3. Multiple Agents5.3. Formal Governance Shapes Relational Contracts5.3.1. Allocating Control to Manage Reneging Temptations5.3.2. The Interaction of Formal and Relational Incentive Contracts5.4. The Burden of Past Promises5.4.1. Why Stationarity?5.4.2. Imperfect Transfers and Backloading5.4.3. Uncoordinated Punishments5.5. Conclusion5.6. Problems6. Personnel6.1. Hiring6.2. Skill Development6.2.1. The Becker Problems: Who Pays for Training?6.2.2. Selling General-Purpose Skills Through Apprenticeships6.2.3. Motivating Firm-Specific Skills with Wage Schedules6.3. Job Assignments6.3.1. Wage and Promotion Dynamics6.3.2. Promotions Signal Productivity to the Labor Market6.3.3. Slot-Constrained Promotion Opportunities6.4. Conclusion6.5. Problems7. Real Authority7.1. Sources of Influence7.1.1. Influence from Expertise7.1.2. Influence from Inspiration7.1.3. Influence over a Group7.2. Sources of Leverage7.2.1. Implementation Leverage7.2.2. Cooperative Leverage7.2.3. Retaliatory Leverage7.2.4. Indirect Leverage7.3. Conclusion7.3.1. Politics7.3.2. Coalitions7.3.3. Power7.4. Problems8. Structure8.1. Hierarchies8.1.1. Decision-Making Hierarchies Economize on Information Costs8.1.2. Monitoring Hierarchies Provide an Efficient Way to Scale8.1.3. Knowledge Hierarchies Leverage Expertise8.2. Divisionalization8.2.1. Task Grouping in Functional versus Multidivisional Organizations8.2.2. Internal Capital Markets8.2.3. Transfer Pricing8.3. Conclusion8.4. Problems9. Boundaries9.1. Payoff Rights9.1.1. Choosing the Residual Claimant9.1.2. An Incentive-System Model of Firm Boundaries9.2. Control Rights9.2.1. An Adaptation Model of Firm Boundaries9.2.2. A Property-Rights Model of Firm Boundaries9.3. An Influence-Cost Model of Firm Boundaries9.4. Connections with Classics9.4.1. Ex Post Versus Ex Ante Inefficiencies9.4.2. Specific Investments9.4.3. Forbearance9.4.4. The Make-or-Buy Problem?9.5. Conclusion9.6. Problems10. Non-Integration10.1. Bilateral Interactions10.1.1. Joint Ventures10.1.2. Standard-Setting Organizations10.1.3. Strategic Alliances10.2. Polycentric Governance10.2.1. Supplier Pools10.2.2. Institutions10.2.3. Communities10.3. Conclusion10.4. Problems11. Frontiers11.1. Recent Empirical Intersections Between OE and Applied Microeconomics11.2. Potential Intersections Between OE and Other Disciplines11.3. Management11.4. Persistent Performance Differences11.5. Building a Shared Narrative11.6. Societal Culture and Organizational cultureGame Theory AppendixReferencesIndex