Inside Organizations: Pricing, Politics, and Path Dependence
Author(s)Gibbons, Robert S.
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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 review 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 asking 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.
DepartmentMassachusetts Institute of Technology. Department of Economics; Sloan School of Management
Annual Review of Economics
Gibbons, Robert. “Inside Organizations: Pricing, Politics, and Path Dependence.” Annual Review of Economics 2.1 (2010): 337–365.
Author's final manuscript