Since its take-off in the beginning of the 1970s (e.g. Alchian and Demsetz, 1972), organizational economics has been centrally concerned with what is a very recent recognition in the knowledge management literature, namely ‘that social relations and learning processes do not happen in a political vacuum and, on the contrary, take place in a landscape of interests and differential power positions and relations’ (Easterby-Smith et al., 2000: 793). Fundamentally, organizational economics represents a body of theory that allows the theorist to understand the nature of the obstacles to coordination within and between firms, as well as such issues as how the allocation of incentives and property rights influence the actions and investment decisions of individual agents (i.e. their human capital investments). It does so on the basis of precise assumptions about technologies (e.g. team production, complementarities), the distribution of information, the allocation of incentives and property rights, the degree of rationality and foresight possessed by agents, etc. In other words, organizational economics is taken up with the benefits as well as the costs of alternative contractual, organizational, and institutional structures. It puts forward comparative propositions on this basis.

Organizational economics advances research on knowledge management in organizations by allowing the derivation of novel refutable propositions that are of direct relevance for the empirical research ...

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