Network Organizations

Fernando Vega-Redondo

No ECO2008/09, Economics Working Papers from European University Institute

Abstract: 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.

JEL-codes: D20 D83 D85 (search for similar items in EconPapers)
Date: 2008
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