Inside Organizations: Pricing, Politics, and Path Dependence
Name
Gibbons ARE.pdf
Size
2.54 MB
Format
Adobe PDF
Checksum (MD5)
de87d39214c6838d110918be7c71afed
Author(s)
Gibbons, Robert
Date Issued
December 2009
Publisher
Cambridge, MA; Alfred P. Sloan School of Management, Massachusetts Institute of Technology
Series/Report no.
MIT Sloan School of Management Working Paper;4777-10
Abstract
When economists have considered organizations, much attention has focused on the
boundary of the firm, rather than its internal structures and processes. In contrast, this
essay sketches three approaches to the economic theory of internal organization—
one substantially developed, another rapidly emerging, and a third on the horizon.
The first approach (pricing) applies Pigou’s prescription: if markets get prices wrong
then the economist’s job is to fix the prices. The second approach (politics) considers
environments where important actions inside organizations simply cannot be priced,
so power and control become central. Finally, the third approach (path-dependence)
complements the first two by shifting attention from the “between” variance to the
“within.” That is, rather than ask how organizations confronting different
circumstances should choose different structures and processes, the focus here is on
how path-dependence can cause persistent performance differences among seemingly
similar enterprises.
Description
This essay was originally drafted for the Nobel Symposium on "Foundations of Organization.” Even that incomplete
original draft almost tripled the length constraint for the Annual Review, so this essay provides only an overview of
the project.
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