14.282 | Spring 2009 | Graduate
Organizational Economics

Readings

Required readings include cases marked by (C) and those denoted by an asterisk (*) symbol. The readings marked by (H) are draft chapters from the following:

Gibbons, R., and J. Roberts, eds. The Handbook of Organizational Economics. Princeton, NJ: Princeton University Press, forthcoming.

SES # TOPICS READINGS CASES
Module 1: boundaries of the firm
1 Introduction

*Coase, Ronald. “The Nature of the Firm.” Economica 4 (1937): 386-405.

*Williamson, Oliver. “The Vertical Integration of Production: Market Failure Considerations.” American Economic Review 61 (1971): 112-123.

*Alchian, Armen, and Harold Demsetz. “Production, Information Costs, and Economic Organization.” American Economic Review 62 (1972): 316-325.

*Klein, Benjamin, Robert Crawford, and Armen Alchian. “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process.” Journal of Law and Economics 21 (1978): 297-326.

Williamson, Oliver. “Transaction Cost Economics: The Governance of Contractual Relations.” Journal of Law and Economics 22 (1979): 233-261.

(H) Baker, George. “Clinical Papers in Organizational Economics.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

 
2 Classic evidence

*Monteverde, Kirk, and David Teece. “Supplier Switching Costs and Vertical Integration in the Automobile Industry.” Bell Journal of Economics 13 (1982): 206-212.

*Masten, Scott. “The Organization of Production: Evidence from the Aerospace Industry.” Journal of Law and Economics 27 (1984): 403-417.

*Joskow, Paul. “Vertical Integration and Long-Term Contracts: The Case of Coal-Burning Electric Generation Plants.” Journal of Law Economics and Organizations 1 (1985): 33-80.

Macher, Jeffrey, and Barak Richman. “Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences.” Business and Politics 10 (2008): 1-63.

 
3 Formal theories

Property rights

*Grossman, Sanford, and Oliver Hart. “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration.” Journal of Political Economy 94, no. 2 (1986): 691-719.

Hart, Oliver. Firms, Contracts, and Financial Structure. Oxford, United Kingdom: Clarendon Press, 1995, chapter 2. ISBN: 9780198288817.

Whinston, Michael. “On the Transaction Cost Determinants of Vertical Integration.” Journal of Law Economics and Organizations 19 (2003): 1-23.

Incentive systems

Holmstrom, Bengt, and Paul Milgrom. “The Firm as an Incentive System.” American Economic Review 84, no. 4 (1994): 972-991.

*Holmstrom, Bengt. “The Firm as a Subeconomy.” Journal of Law Economics and Organizations 15 (1999): 74-102.

Adaptation

*Simon, Herbert. “A Formal Theory Model of the Employment Relationship.” Econometrica 19 (1951): 293-305.

Williamson, Oliver. Markets and Hierarchies: Analysis and Antitrust Implications. New York, NY: Free Press, 1983. ISBN: 9780029347805.

Hart, Oliver, and John Moore. “Contracts as Reference Points.” Quarterly Journal of Economics 123 (2008): 1-48.

Hart, Oliver, and Bengt Holmstrom. “A Theory of Firm Scope.” National Bureau of Economic Research Working Paper No. 14613, December 2008.

Overviews

Gibbons, Robert. “Four Formal(izable) Theories of the Firm?” Journal of Economic Behavior and Organization 58 (2005): 202-247 (sections 1-3).

(H) Tadelis, Steven, and Oliver Williamson. “Transaction Cost Economics.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

(H) Segal, Ilya, and Michael Whinston. “Property Rights.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

 
4 Recent evidence

*Woodruff, Christopher. “Non-contractible Investment and Vertical Integration in the Mexican Footwear Industry.” International Journal of Industrial Organization 20, no. 8 (2002): 1197-1224.

Baker, George, and Thomas Hubbard. “Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information.” American Economic Review 93 (2003): 551-572.

*———. “Contractibility and Asset Ownership: On-Board Computers and Governance in US Trucking.” Quarterly Journal of Economics 119, no. 4 (2004): 1443-1479.

Azoulay, Pierre. “Capturing Knowledge Within and Across Firm Boundaries: Evidence from Clinical Development.” American Economic Review 94, no. 5 (2004): 1591-1612.

Forbes, Silke, and Mara Lederman. “Adaptation and Vertical Integration in the Airline Industry.” Unpublished manuscript, University of California, San Diego, 2008.

———. “Does Vertical Integration Affect Firm Performance? Evidence from the Airline Industry.” Unpublished manuscript, University of Toronto, 2008.

(H) Bresnahan, Timothy, and Jonathan Levin. “Vertical Integration and Market Structure.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, 2009, forthcoming.

 
5 Contracting between firms

Formal contracts

Aghion, Philippe, and Jean Tirole. “On the Management of Innovation.” Quarterly Journal of Economics 109 (1994): 1185-1207.

*Bajari, Patrick, and Steven Tadelis. “Incentives Versus Transaction Costs: A Theory of Procurement Contracts.” RAND Journal of Economics 32 (2001): 287-307.

Relational contracts

Macaulay, Stewart. “Non Contractual Relations in Business: A Preliminary Study.” American Sociological Review 28 (1963): 55-67.

Macneil, Ian. “Contracts: Adjustments of Long-term Economic Relations Under Classical, Neoclassical, and Relational Contract Law.” Northwestern University Law Review 192 (1978): 854-906.

Klein, Benjamin, and Kevin M. Murphy. “Vertical Restraints as Contract Enforcement Mechanisms.” Journal of Law and Economics 31 (1988): 265-297.

———. “Vertical Integration as a Self-Enforcing Contractual Arrangement.” American Economic Review 87 (1997): 415-420.

Klein, Benjamin. “The Role of Incomplete Contracts in Self-Enforcing Relationships.” Revue D’Économie Industrielle 92 (2000): 67-80.

*Baker, George P., Robert Gibbons, and Kevin J. Murphy. “Relational Contracts and the Theory of the Firm.” Quarterly Journal of Economics 117 (2002): 39-84.

(H) Malcomson, James. “Relational Incentive Contracts.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

 
6 Evidence on contracts

*Lerner, Josh, and Robert Merges. “The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry.” Journal of Industrial Economics 46 (1998): 125-156.

McMillan, John, and Christopher Woodruff. “Dispute Prevention Without Courts in Vietnam.” Journal of Law, Economics, and Organization 15 (1999): 637-658.

*Arruñada, Benito, Luis Garicano, and Luis Vázquez. “Contractual Allocation of Decision Rights and Incentives: The Case of Automobile Distribution.” Journal of Law, Economics, and Organization 17 (2001): 257-284.

Elfenbein, Daniel, and Josh Lerner. “Ownership and Control Rights in Internet Portal Alliances, 1995-1999.” RAND Journal of Economics 34 (2003): 356-369.

*Corts, Kenneth, and Jasjit Singh. “The Effect of Repeated Interaction on Contract Choice: Evidence from Offshore Drilling.” Journal of Law, Economics, and Organization 20 (2004): 230-260.

Gil, Ricard, and Justin Marion. “The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions.” Unpublished manuscript, University of California, Santa Cruz, 2009.

(H) Lafontaine, Francine, and Margaret Slade. “Inter-Firm Contracts: Evidence.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

 
7 Cases on integration and contracts No readings

(C) Weber, Katherine Seger, and Linda Hill. “Rudi Gassner and the Executive Committee of BMG International (A).” Boston, MA: Harvard Business School Case #9-494-055, 1995.

(C) Hunt, Brian, and Josh Lerner. “Xerox Technology Ventures: March 1995.” Boston, MA: Harvard Business School Case #9-295-127, 1998.

(C) Freeze, Karen, and Gary Pisano. “Crown Equipment Corporation: Design Services Strategy.” Boston, MA: Harvard Business School Case #9-991-031, 1991.

(C) Dyer, Jeffrey. “How Chrysler Created an American Keiretsu.” Harvard Business Review (July-August 1996): 32-46.

Module 2: employment in organizations
8 Pay for performance

Background

Lazear, Edward. “Performance Pay and Productivity.” American Economic Review 90 (2000): 1346-1361.

(H) Baron, James, and David Kreps. “Employment as an Economic and a Social Relationship.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

Gaming

Baker, George. “Incentive Contracts and Performance Measurement.” Journal of Political Economy 100, no. 3 (1992): 598-614.

———. “Distortion and Risk in Optimal Incentive Contracts.” Journal of Human Resources 37, no. 4 (2002): 728-751.

*Courty, Pascal, and Gerald Marschke. “An Empirical Investigation of Gaming Responses to Explicit Performance Incentives.” Journal of Labor Economics 22 (2004): 23-56.

*Oyer, Paul. “Fiscal Year Ends and Nonlinear Incentive Contracts: The Effect on Business Seasonality.” Quarterly Journal of Economics 113, no. 1 (1998): 149-185.

Larkin, Ian. “The Cost of High-Powered Incentives: Employee Gaming in Enterprise Software Sales.” Unpublished manuscript, Harvard Business School, 2007.

Discretion

*Baker, George, Robert Gibbons, and Kevin J. Murphy. “Subjective Performance Measures in Optimal Incentive Contracts.” Quarterly Journal of Economics 109 (1994): 1125-1156.

Hayes, Rachel, and Scott Schaefer. “Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance.” RAND Journal of Economics 31 (2000): 273-293.

 
9 Cases on incentives No readings

(C) Burtis, Andrew, and John Gabarro. “Brainard, Bennis & Farrell.” Boston, MA: Harvard Business School Case #9-485-037, 1996.

(C) Stewart, James. “Taking the Dare.” The New Yorker (July 26, 1993): 34-39.

(C) Roy, Donald. “Quota Restriction and Goldbricking in a Machine Shop.” American Journal of Sociology 57 (1952): 427-442.

10 Job assignment, skill development, and networks

Background

(H) Lazear, Edward, and Paul Oyer. “Personnel Economics.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

Job assignment

*Waldman, Michael. “Job Assignment, Signaling, and Efficiency.” RAND Journal of Economics 15 (1984): 255-287.

Brüderl, Josef, Andreas Diekmann, and Peter Preisendörfer. “Patterns of Intraorganizational Mobility: Tournament Models, Path Dependency, and Early Promotion Effects.” Social Science Research 20 (1991): 197-216.

Chiappori, Pierre-André, Bernard Salanié, and Julie Valentin. “Early Starters versus Late Beginners.” Journal of Political Economy 107 (1999): 731-760.

Skill development

*Prendergast, Canice. “The Role of Promotion in Inducing Specific Human Capital Acquisition.” Quarterly Journal of Economics 108 (1993): 523-534.

Acemoglu, Daron, and J. Stephen Pischke. “Why Do Firms Train? Theory and Evidence.” Quarterly Journal of Economics 113, no. 1 (1998): 79-119.

Autor, David. “Why Do Temporary Help Firms Provide Free General Skills Training?” Quarterly Journal of Economics 116, no. 4 (2001): 1409-1448.

Networks

*Podolny, Joel, and James Baron. “Resources and Relationships: Social Networks and Mobility in the Workplace.” American Sociological Review 62 (1997): 673-693.

Fernandez, Roberto, and Nancy Weinberg. “Sifting and Sorting: Personal Contacts and Hiring in a Retail Bank.” American Sociological Review 62 (1997): 883-902.

Fernandez, Roberto, Emilio Castilla, and Paul Moore. “Social Capital at Work: Networks and Employment at a Phone Center.” American Journal of Sociology 105 (1999): 1288-1356.

Skill development

(C) Wiggenhorn, William. “Motorola U: When Training Becomes an Education.” Harvard Business Review (July-August 1990): 71-83.

11 Careers in organizations

Evidence

*Baker, George, Michael Gibbs, and Bengt Holmstrom. “The Internal Economics of the Firm: Evidence from Personnel Data.” Quarterly Journal of Economics 109 (1994): 881-919.

*———. “The Wage Policy of a Firm.” Quarterly Journal of Economics 109 (1994): 921-955.

Treble, John, Edwin van Gameren, Sarah Bridges, and Tim Barmby. “The Internal Economics of the Firm: Further Evidence from Personnel Data.” Labour Economics 8 (2001): 531-552.

Theory and testing

*Gibbons, Robert, and Michael Waldman. “A Theory of Wage and Promotion Dynamics Inside a Firm.” Quarterly Journal of Economics 114, no. 4 (1999): 1321-1358.

Lluis, Stéphanie. “The Role of Comparative Advantage and Learning in Wage Dynamics and Intrafirm Mobility: Evidence from Germany.” Journal of Labor Economics 23 (2005): 725-767.

Survey

(H) Waldman, Michael. “Theory and Evidence in Internal Labor Markets.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

Evidence

(C) Sonnenfeld, Jeffrey, and Meredith Lazo. “United Parcel Service (A) and (B).” Boston, MA: Harvard Business School Case #9-488-016 and -017, 1992.

12 Employment systems

*Ichniowski, Casey, Kathryn Shaw, and Giovanna Prennushi. “The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines.” American Economic Review 87 (1997): 291-313.

*Baron, James, and Michael Hannan. “Organizational Blueprints for Success in High-Tech Start-Ups: Lessons from the Stanford Project on Emerging Companies.” California Management Review 44 (2002): 8-36.

Milgrom, Paul, and John Roberts. “The Economics of Modern Manufacturing: Technology, Strategy and Organization.” American Economic Review 80 (1990): 511-528.

(H) Ichniowski, Casey, and Kathryn Shaw. “Insider Econometrics: A Roadmap to Estimating Empirical Models of Organizational Performance.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

(H) Brynjolfsson, Erik, and Paul Milgrom. “Complementarity in Organizations.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

(C) Fast, Norman, and Norman Berg. “The Lincoln Electric Company.” Boston, MA: Harvard Business School Case #376-028, 1975.

(C) Brown, Claire, and Michael Reich. “When Does Union-Management Cooperation Work? A Look at NUMMI and GM-Van Nuys.” California Management Review (Summer 1989): 26-44.

Module 3: decision-making in organizations
13 Decision processes

Background

*Gibbons, Robert. “Team Theory, Garbage Cans, and Real Organizations: Some History and Prospects of Economic Research on Decision-Making in Organizations.” Industrial and Corporate Change 12, no. 4 (2003): 753-787 (sections 1-3).

Team theory

Marschak, Jacob, and Roy Radner. Economic Theory of Teams. New Haven, CT: Yale University Press, 1972. ISBN: 9780300012798.

*Sah, Raj, and Joseph Stiglitz. “The Architecture of Economic Systems: Hierarchies and Polyarchies.” American Economic Review 76 (1986): 716-27.

Csaszar, Felipe. “An Efficient Frontier in Organization Design.” Unpublished manuscript, University of Pennsylvania, Wharton School, 2008.

———. “Organizational Structure as a Determinant of Performance: Evidence from Mutual Funds.” Unpublished manuscript, University of Pennsylvania, Wharton School, 2008.

Organization theory

March, James, and Herbert Simon. Organizations. New York, NY: John Wiley and Sons, 1958. ISBN: 9780471567936.

Cyert, Richard, and James March. A Behavioral Theory of the Firm. 2nd ed. New York, NY: Wiley-Blackwell, 1992. ISBN: 9780631174516.

Cohen, Michael, James March, and Johan Olsen. “A Garbage Can Model of Organizational Choice.” Administrative Science Quarterly 17 (1972): 1-25.

*Feldman, Martha, and James March. “Information in Organizations as Signal and Symbol.” Administrative Science Quarterly 26 (1981): 171-186.

 
14 Authority and power

*Aghion, Philippe, and Jean Tirole. “Formal and Real Authority in Organizations.” Journal of Political Economy 105 (1997): 1-29.

*Baker, George, Robert Gibbons, and Kevin J. Murphy. “Informal Authority in Organizations.” Journal of Law, Economics, and Organization 15 (1999): 56-73.

Rotemberg, Julio. “Power in Profit-Maximizing Organizations.” Journal of Economics and Management Strategy 2 (1993): 165-198.

Rajan, Raghuram, and Luigi Zingales. “Power in a Theory of the Firm.” Quarterly Journal of Economics 113, no. 2 (1998): 387-432.

Pfeffer, Jeffrey. “Sources of Power in Organizations.” Chapter 4 in Power in Organizations. Marshfield, MA: Pitman, 1981. ISBN: 9780273016397.

(C) Aguilar, Francis, and Arvind Bhambri. “Johnson & Johnson (A), (B).” Boston, MA: Harvard Business School Case #384-053 and -054, 1983.

(C) Foss, Nicolai. “Selective Intervention and Internal Hybrids: Interpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization.” Organization Science 14 (2003): 331-49.

15 Politics and influence

March, James. “The Business Firm as a Political Coalition.” Journal of Politics 24 (1962): 662-678.

Skaperdas, Stergios. “Cooperation, Conflict, and Power in the Absence of Property Rights.” American Economic Review 82 (1992): 720-739.

*Rajan, Raghuram, and Luigi Zingales. “The Tyranny of Inequality.” Journal of Public Economics 76 (2000): 521-558.

*Milgrom, Paul, and John Roberts. “An Economic Approach to Influence Activities in Organizations.” American Journal of Sociology 94 (1988): S154-S179.

Rotemberg, Julio, and Garth Saloner. “Overt Interfunctional Conflict (and its Reduction through Business Strategy).” RAND Journal of Economics 26 (1995): 630-653.

Prendergast, Canice. “A Theory of ‘Yes Men.’” American Economic Review 83 (1993): 757-770.

Kramer, Roderick. “Organizational Paranoia: Origins and Dynamics.” Research in Organizational Behavior 23 (2001): 1-42.

 
16 Culture and language

*Kreps, David. “Corporate Culture and Economic Theory.” In Perspectives on Positive Political Economy. Edited by J. Alt and K. Shepsle. New York, NY: Cambridge University Press, 1990. ISBN: 9780521398510.

*Colin, Camerer, and Roberto Weber. “Growing Organizational Culture in the Laboratory.” Chapter 96 in Handbook of Experimental Economics Results. Vol. 1. Edited by Charles R. Plott and Vernon L. Smith. Amsterdam, The Netherlands: Elsevier, 2008. ISBN: 9780444826428.

*Weber, Roberto. “Managing Growth to Achieve Efficient Coordination in Large Groups.” American Economic Review 96, no. 1 (2006): 114-126.

Crémer, Jacques, Luis Garicano, and Andrea Prat. “Language and the Theory of the Firm.” Quarterly Journal of Economics 122, no. 1 (2007): 373-407.

Van den Steen, Eric. “On the Origin of Shared Beliefs (and Corporate Culture).” Unpublished manuscript, Massachusetts Institute of Technology, 2005.

O’Reilly, Charles, and Jennifer Chatman. “Culture as Social Control: Corporations, Cults, and Commitment.” In Research in Organizational Behavior: An Annual Series of Analytical Essays and Critical Reviews. Vol. 18. Edited by B. Staw and L. Cummings. New York, NY: Elsevier, 1999, pp. 157-200. ISBN: 9781559389389.

(H) Camerer, Colin, and Roberto Weber. “Experimental Organizational Economics.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

(C) Kaftan, Colleen, and Louis Barnes. “Sun Hydraulics Corporation (A and B) and (C).” Boston, MA: Harvard Business School Cases #9-491-119 and 9-491-125, 1991.
17 Social relations

Jones, Stephen. “Worker Interdependence and Output: The Hawthorne Studies Reevaluated.” American Sociological Review 55 (1990): 176-190.

*Ichino, Andrea, and Giovanni Maggi. “Work Environment and Individual Background: Explaining Regional Shirking Differentials in a Large Italian Firm.” Quarterly Journal of Economics 115, no. 3 (2000): 1057-1090.

Falk, Armin, and Andrea Ichino. “Clean Evidence on Peer Effects.” Journal of Labor Economics 24 (2005): 39-57.

Mas, Alex, and Enrico Moretti. “Peers at Work.” American Economic Review 99, no. 1 (March 2009): 112-145.

*Bandiera, Oriana, Iwan Barankay, and Imran Rasul. “Social Preferences and the Response to Incentives: Evidence from Personnel Data.” Quarterly Journal of Economics 120, no. 3 (2005): 917-962.

Charness, Gary, Luca Rigotti, and Aldo Rustichini. “Individual Behavior and Group Membership.” American Economic Review 97 (2007): 1340-1352.

(C) Miller, Gary. “Horizontal Cooperation.” Chapter 9 in Managerial Dilemmas: The Political Economy of Hierarchy. New York, NY: Cambridge University Press, 1993. ISBN: 9780521457699.
18 Leadership

*Hermalin, Benjamin. “Toward an Economic Theory of Leadership: Leading By Example.” American Economic Review 88 (1998): 1188-1206.

*Weber, R., Y. Rottenstreich, C. Camerer, and M. Knez. “The Illusion of Leadership: Misattribution of Cause in Coordination Games.” Organizational Science 12 (2001): 582-598.

Zald, Mayer, and Michael Berger. “Social Movements in Organizations: Coup d’Etat, Insurgency, and Mass Movements.” American Journal of Sociology 83 (1978): 823-61.

*Caillaud, Bernard, and Jean Tirole. “Consensus Building: How to Persuade a Group.” American Economic Review 97 (2007): 1877-1900.

Brocas, Isabelle, and Juan Carrillo. “Influence Through Ignorance.” RAND Journal of Economics 38 (2007): 931-947.

Rotemberg, Julio, and Garth Saloner. “Leadership Style and Incentives.” Management Science 39 (1993): 1299-1318.

Van den Steen, Eric. “Organizational Beliefs and Managerial Vision.” Journal of Law, Economics, and Organization 21 (2005): 256-283.

(H) Hermalin, Benjamin. “Leadership and Corporate Culture.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

(C) Rogers, Gregory, and Michael Beer. “Human Resources at Hewlett-Packard (A) and (B).” Boston, MA: Harvard Business School Cases #9-495-051 and 9-495-052, 1995.
Module 4: structures and processes in organizations
19 Five elemental models of hierarchy

Radner, Roy. “Hierarchy: The Economics of Managing.” Journal of Economic Literature 30 (1992): 1382-1415.

———. “The Organization of Decentralized Information Processing.” Econometrica 61 (1993): 1109-1146.

Van Zandt, Timothy. “Real-Time Hierarchical Resource Allocation.” Unpublished manuscript, INSEAD, 2003.

Calvo, Guillermo, and Stanislaw Wellisz. “Supervision, Loss of Control, and the Optimum Size of the Firm.” Journal of Political Economy 86, no. 5 (1978): 943-952.

———. “Hierarchy, Ability, and Income Distribution.” Journal of Political Economy 87, no. 5 (1979): 991-1010.

*Garicano, Luis. “Hierarchies and the Organization of Knowledge in Production.” Journal of Political Economy 108 (2000): 874-904.

*Hart, Oliver, and John Moore. “On the Design of Hierarchies: Coordination Versus Specialization.” Journal of Political Economy 113 (2005): 675-702.

(H) Garicano, Luis, and Timothy Van Zandt. “Hierarchies and the Division of Labor.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

 
20 Cases on organizational structures and processes

Additional material

Buy at MIT Press Chandler, Alfred. Strategy and Structure. Cambridge, MA: MIT Press, 1969. Reprinted with new introduction by the author. Cambridge, MA: MIT Press, 1969. ISBN: 9780262530095.

Miles, Raymond, and Charles Snow. “Causes of Failure in Network Organizations.” California Management Review 34 (1992): 53-72.

Bartlett, Christopher, and Sumantra Ghoshal. “Beyond the M-Form: Toward a Managerial Theory of the Firm.” Strategic Management Journal 14 (1993): 23-46.

(C) Freeland, Robert. “The Myth of the M-Form? Governance, Consent, and Organizational Change.” American Journal of Sociology 102 (1996): 483-526.

(C) Holland, Philip, and Robert Eccles. “Jacobs Suchard: Reorganizing for 1992.” Boston, MA: Harvard Business School Case #9-489-106, 1989.

(C) Bartlett, Christopher. “ABB’s Relays Business: Building and Managing a Global Matrix.” Boston, MA: Harvard Business School Case #9-394-016, 1993.

21 Recent models of structure

Agency with delegation

Prendergast, Canice. “The Tenuous Trade-Off Between Risk and Incentives.” Journal of Political Economy 110 (2002): 1071-1102.

Zábojnik, Ján. “Centralized and Decentralized Decision Making in Organizations.” Journal of Labor Economics 20 (2002): 1-22.

Rantakari, Heikki. “Uncertainty, Delegation, and Incentives.” Unpublished manuscript, University of Southern California, 2008.

Corporate strategy

Athey, Susan, and John Roberts. “Organizational Design: Decision Rights and Incentive Contracts.” American Economic Review 91 (2001): 200-205.

Dessein, Wouter, Luis Garicano, and Robert Gertner. “Organizing for Synergies: Allocating Control to Manage the Coordination-Incentives Tradeoff.” Unpublished manuscript, Columbia University, 2008.

Friebel, Guido, and Michael Raith. “Resource Allocation and Firm Scope.” Unpublished manuscript, University of Rochester, 2008.

Communication

Dessein, Wouter. “Authority and Communication in Organizations.” Review of Economic Studies 69 (2002): 811-38.

*Alonso, Ricardo, Wouter Dessein, and Niko Matouschek. “When Does Coordination Require Centralization?” American Economic Review 98 (2008): 145-79.

*Rantakari, Heikki. “Governing Adaptation.” Review of Economic Studies 75 (2008): 1257-85.

Obedience

*Van den Steen, Eric. “Interpersonal Authority in a Theory of the Firm.” Unpublished manuscript, Harvard Business School, 2007.

Marino, Anthony, John Matsusaka, and Ján Zábojnik. “Disobedience and Authority.” Unpublished manuscript, University of Southern California, 2008.

 
22 Conglomerates and corporate strategy

*Baker, George. “Beatrice: A Study in the Creation and Destruction of Value.” Journal of Finance 47 (1992): 1081-1119.

Schoar, Antoinette. “Effects of Corporate Diversification on Productivity.” Journal of Finance 57 (2002): 2379-2403.

*Villalonga, Belén. “Diversification Discount or Premium? New Evidence from Business Information Tracking Series Establishment-Level Data.” Journal of Finance 59 (2004): 475-502.

Mullainathan, Sendhil, and David Scharfstein. “Do Firm Boundaries Matter?” American Economic Review Papers and Proceedings 91 (2001): 195-199.

Gertner, Robert, David Scharfstein, and Jeremy Stein. “Internal Versus External Capital Markets.” Quarterly Journal of Economics 109 (1994): 1211-1230.

Holmstrom, Bengt, and Jean Tirole. “Transfer Pricing and Organizational Form.” Journal of Law, Economics, and Organization 7 (1991): 201-228.

 
23 Hybrids

Richardson, George. “The Organisation of Industry.” Economic Journal 82 (1972): 883-896.

Blois, K. “Vertical Quasi-Integration.” Journal of Industrial Economics 20 (1972): 253-272.

Eccles, Robert. “The Quasifirm in the Construction Industry.” Journal of Economic Behavior and Organization 2, no. 4 (1981): 335-357.

Powell, Walter. “Neither Market Nor Hierarchy: Network Forms of Organization.” Research in Organizational Behavior 12 (1990): 295-336.

*Ménard, Claude. “On Clusters, Hybrids, and Other Strange Forms: The Case of the French Poultry Industry.” Journal of Institutional and Theoretical Economics 152 (1996): 154-183.

*Robinson, David, and Toby Stuart. “Network Effects in the Governance of Strategic Alliances.” Journal of Law, Economics, and Organization 23 (2007): 242-273.

*Baker, George, Robert Gibbons, and Kevin J. Murphy. “Strategic Alliances: Bridges Between ‘Islands of Conscious Power.’” Journal of the Japanese and International Economies 22, no. 2 (June 2008): 146-163.

(H) Ménard, Claude. “Hybrid Modes of Organization: Alliances, Joint Ventures, Networks, and Other ‘Strange’ Animals.” In The Handbook of Organizational Economics. Edited by R. Gibbons and J. Roberts. Princeton, NJ: Princeton University Press, forthcoming.

(C) McQuade, Krista, and Benjamin Gomes-Casseres. “Xerox and Fuji Xerox.” Boston, MA: Harvard Business School Case #9-391-156, 1992.
24 Corporate governance and corporate capital

*Baker, George P., and Karen Wruck. “Organizational Changes and Value Creation in Leveraged Buyouts: The Case of O.M. Scott & Sons Company.” Journal of Financial Economics 25, no. 2 (1989): 163-190.

*Kaplan, Steven N. “The Effects of Management Buyouts on Operating Performance and Value.” Journal of Financial Economics 24, no. 2 (1989): 217-254.

Jensen, Michael, and Richard Ruback. “The Market for Corporate Control: The Scientific Evidence.” Journal of Financial Economics 11 (1983): 5-50.

Holmstrom, Bengt, and Steven Kaplan. “The State of U.S. Corporate Governance: What’s Right and What’s Wrong?” Journal of Applied Corporate Finance 15 (2003): 8-20.

 
25 Conclusion    
Course Info
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As Taught In
Spring 2009
Level