Distinguishing Useful and Wasteful Slack

Peter Bogetoft () and Pieter Kerstens
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Peter Bogetoft: Department of Economics, Copenhagen Business School, 2000 Frederiksberg, Denmark

Operations Research, 2024, vol. 72, issue 4, 1556-1573

Abstract: The literature on organization and strategic management suggests that slack in the form of excess resources may be useful. It may, for example, serve as a buffer against environmental shocks, help decouple organizations, ease planning and implementation, support innovation, and enable effective responses to competitors. In contrast, the economic literature tends to view slack as wasteful. When the same products and services can be produced with fewer resources and slack per se is not assigned any value, slack should be eliminated. The aim of this paper is to reconcile these two perspectives. We acknowledge that slack may be both useful and wasteful. The challenge is how to separate the two. Our approach relies on the simple Pareto idea. If an organization can maintain the same levels of output and slack at lower cost, there is wasteful or nonrationalizable spending. We develop ways to measure the extent to which total spending can be rationalized and show how to statistically estimate and test the usefulness of the available slack using bootstrapping.

Keywords: Optimization; organizational slack; rationalization; estimation; testing; bootstrapping (search for similar items in EconPapers)
Date: 2024
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