Handbook of Organizations (RLE: Organizations)

CHAPTER 10	Economic Theories of Organization
	THOMAS A. MARSCHAK

I. INTRODUCTION

A theory of organizations deduces propositions about the behavior of an organization from assumptions about the organization's members and about its environment. A theory is realistic (or predictive) if the behavior described by the propositions in fact occurs in the real world. A theory is normative if the “success” of the organization is assumed measurable, and if the members are assumed to try to behave, and to be able to behave, so as to make success high. A theory is both normative and realistic if, in fact, members do try and are able.¹

We shall sketch here the main contributions of economic theorists to organization theories. We shall argue that ...