Organizational Economics: A Novel Perspective on Knowledge Management


Despite beginning as a theory of the existence and optimal scope of the firm (Coase, 1937; Williamson, 1985), during the last twenty years or so organizational economics has increasingly been applied to internal organization issues. In particular, it has directed attention to the coordination and incentive problems that are caused by the pathologies that unavoidably accompany an internal division of labor, such as asymmetric information, diluted performance incentives, measurement difficulties, bargaining problems, moral hazard, duplicative (redundant) efforts, etc. In turn, organizational economists have explained how a host of organizational arrangements, such as various kinds of authority, payment schemes, delegation of decision rights, etc. serve to alleviate the severity of such problems.

Beginning our brief sampling of organizational economics perspectives, agency theory perspectives have predominantly addressed issues related to payment schemes (Holmström, 1979, 1989) delegation of decision rights (Fama and Jensen, 1983; Jensen and Meckling, 1992; Aghion and Tirole, 1997), multitasking (Holmström and Milgrom, 1994), and managerial commitment (Baker et al., 1999) under assumptions of moral hazard and asymmetric information. Transaction cost economics (Williamson, 1985, 1996) and property rights insights (Hart, 1995) have been brought to bear on issues related to allocation of rights and design of ...

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