Inside Organizations: Pricing, Politics, and Path Dependence

Robert Gibbons ()
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Robert Gibbons: Sloan School and Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142, and NBER

Annual Review of Economics, 2010, vol. 2, issue 1, pages 337-365

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 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.

Keywords: relational contracts; productivity differences (search for similar items in EconPapers)
JEL-codes: D21 D23 (search for similar items in EconPapers)
Date: 2010
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