the determinants of the management hierarchy evidence from italian plants abstract the paper aims to test some of the predictions of economic theory on the organizational architecture by looking at the relation between the depth of the management hierarchy of plants and plant and industry specific variables i test this relation through the estimates of an ordered logit econometric model on a sample of 438 italian manufacturing plants the findings show that the plant size the characteristics i e vintage and extent of use of the production and communication technology in use the plant s ownership status i e state versus private ownership and differences in the nationality of firms to which plants belong figure prominently in explaining the complexity of a plant s organization

competitive incentives working harder or working smarter almost all jobs require a combination of cognitive effort and labor effort this paper focuses on the effect that competitive incentive schemes have on the chosen combination of these two types of efforts we use an experimental approach to show that competitive incentives may induce agents to work harder but not necessarily smarter this effect was stronger for women this paper was accepted by john list behavioral economics

intertemporal borrowing to sustain exogenous consumption standards under uncertainty abstract consider an agent who is attempting to maintain a given consumption level over time in the face of a stochastic technology he is permitted to borrow and lend at given rates of interest the main results are i if the borrowing rate of interest exceeds the lending rate the expected net indebtedness of the agent must grow unboundedly large unless the consumption target is attainable with at most one loan and ii the probabilities of the two events becoming increasingly indebted and accumulating unbounded wealth sum to unity

temporary foreign workers and firms theory and canadian evidence abstract temporary foreign worker tfw programs have grown considerably in size when uncapped we develop a simple efficiency wage model to explain this phenomenon and examine the empirical evidence for it we also use the model to evaluate the implications of tfw programs for domestic workers in our framework firms that have been unable to find domestic workers may hire tfws at the wage previously advertised to domestic workers due to the lower outside option for tfws than domestic workers tfws will exert more effort for the same wage firms would thus prefer to hire otherwise identical tfws rather than domestic workers our model identifies an unintended consequence of a tfw program since the repercussions of a failed domestic job search are less severe if a tfw may be hired instead firms have an incentive to lower their wage offers made to domestic workers using canadian data we find that relative to domestic workers tfws work longer hours have lower rates of absenteeism and are less likely to be laid off consistent with higher effort in our model moreover for tfws from home countries with a relatively high outside option effort is lower than for tfws from other countries resume travailleurs etrangers temporaires et entreprises theorie et exemple canadien en l absence de plafonnement les programmes de travailleurs etrangers temporaires ptet se sont considerablement developpes afin d expliquer ce phenomene et d en examiner les preuves empiriques nous avons developpe un modele simple de salaire d efficience nous avons egalement utilise ce modele pour evaluer l incidence des ptet sur les travailleurs domestiques dans notre cadre d etude les entreprises peinant a trouver une main d uvre locale peuvent embaucher des travailleurs etrangers temporaires au salaire prealablement propose aux travailleurs domestiques compte tenu d options exterieures plus faibles les travailleurs etrangers temporaires deploieront davantage d efforts pour le meme salaire les entreprises prefereront donc embaucher des travailleurs etrangers par ailleurs identiques plutot que des travailleurs domestiques notre modele identifie une consequence inattendue aux ptet etant donne que les consequences d une recherche d employes domestiques infructueuse sont attenuees par l embauche de travailleurs etrangers temporaires les entreprises sont incitees a diminuer les offres salariales proposees aux travailleurs locaux en exploitant les donnees propres au canada nous avons decouvert que les travailleurs etrangers temporaires travaillaient plus d heures avaient des taux d absenteisme inferieurs et etaient moins susceptibles de se faire congedier que les travailleurs domestiques conformement au concept d effort accru developpe dans notre modele en outre pour les travailleurs etrangers temporaires originaires de pays a options exterieures relativement elevees l effort sera moindre que pour ceux provenant d autres pays

the politics of conflict and consent abstract transaction cost economics claims to model the labor contract in terms of the opportunism practised by workers a recent alternative has seen custom as the main means by which workers impose their control of the contract both fail to explore workers co operative behavior in the workplace pay insufficient attention to managerial behavior and misunderstand the social organization of conflict and consent materials from industrial sociology and labor history are used to illustrate these limitations to show how the labor contract is in fact negotiated and to suggest how an alternative approach might be constructed

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

incentives and loss of control in an optimal hierarchy this paper studies incentives and loss of control in a hierarchy model which combines and generalizes the models of williamson calvo wellisz and keren levhari in our model of the hierarchy the levels of effort from managers and workers the wage scales the span of control and in particular the total number of tiers are all endogenous using optimal control techniques we show that in the optimal hierarchy the wage scales and effort levels decrease as one moves down the hierarchy as the hierarchy expands with no technological progress workers exert less effort and are paid less top managers work harder and are paid more and the wage distribution becomes increasingly skewed

contracting structures for custom software development the impacts of informational rents and uncertainty on internal development and outsourcing custom software development projects have special informational attributes that have challenged managers for many years they are associated with information asymmetries regarding user valuation and developer costs relationship specific investments and a resulting likelihood of positive externalities for the user or the developer from the other party s investment furthermore in a custom project market prices for software are not helpful in solving either the valuation or the cost problems in this paper we analyze the unique nature of the software development agreements that can be reached between the user and the developer in such a setting we compare the value of using internal and external developers with the goal of better understanding the factors relevant to the outsourcing decision for internal development we derive a new mechanism that achieves the first best system whenever the project has positive expected net value while achieving ex ante budget balance in contrast the optimal mechanism for an external developer will not in general yield the first best system this implies that when internal and external developers have identical cost functions internal development definitely yields the larger net value more generally this implies that an external developer must have considerable cost advantages over an internal developer in order to have the larger net value numerical results indicate that this difference in net values can be very large as much as a 100 increase for internal development over external development this is consistent with the strong bias in favor of internal custom development found in recent empirical studies we also explain why the efficient levels of investment can be achieved only when there are no externalities and we show that the presence of positive externalities results in underinvestment since using an external developer will typically yield a system that is not first best inefficient investments result with or without externalities we present examples showing that uncertainty about system value is not a significant factor in choosing between internal and external development however uncertainty about the development costs is highly significant with greater uncertainty making outsourcing less attractive

allocating decision rights on the shop floor a perspective from transaction cost economics and organization theory this paper explores the links that the allocation of decision rights on the shop floor maintains with labor transaction attributes and several structural traits of the firm the approach is based on the transaction cost apparatus and harnesses the theoretical and empirical background provided by organization theory data are presented from a wide field survey in the spanish food and electronics industries standard industry classification sic 20 and 36 evidence not only verifies the influence of firm size property age and unionism but also shows that the allocation of decision rights is related to a particular mix of labor transaction traits specifically one of the most important results is that employer opportunism offers greater explanatory power than employee opportunism

internal bargaining and strategic innovation in the theory of the firm abstract the transaction cost analysis of the firm has identified asset idiosyncrasy and the risk of ex post opportunism as key determinants of organizational form simultaneously several writers have modeled the distribution of quasi rents among input suppliers as a bargaining game these complementary ideas are used to formalize the notion of strategic innovation where capital and labor attempt to redistribute firm income after specialized assets are in place through unilateral modifications in production technology because strategic behavior can enlarge the quasi rent component of fifirm income this process may persist in equilibrium asset idiosyncrasy therefore creates room for an autonomous theory of organizational dynamics partially insulated from events at the market level of analysis

the organization of work a historical dimension abstract an evaluation of the organizational efficiencies of various modes of production by o e williamson has led him to conclude that given identical technologies the factory was more efficient than the putting out system the superior organizational efficiency of the former he maintains was one reason for the transition to factory production during the nineteenth century this paper challenges that view it is argued that the way in which williamson evaluates efficiency is open to methodological and other objections and that there is limited empirical support for his hypothesis given an identical technology the evidence suggests that the putting out system was usually able to compete with the factory

on some recent explanations of why capital hires labor conventional microeconomics contains no explanation of why capital hires labor and not the reverse in view of some surprisingly positive results in the theoretical analysis of worker run enterprise systems recent contributions to the theory of the firm have attempted to explain the dominance of capitalist production relations in efficiency terms the present paper critically reviews works in this area by alchian and demsetz 1972 williamson 1975 1980 and jensen and meckling 1979 and contends that a convincing efficiency argument for the general superiority of capital owners over workers control of enterprises still is lacking

the function of authority in transaction cost economics abstract this paper questions the transaction cost characterization of observed authority relations as efficient governance structures various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically this exemplifies a more general propensity in the transaction cost literature that of explaining economic organization in functionalist terms with little attention to the causal mechanisms through which efficient governance structures might actually arise three such mechanisms are considered but none is found to provide an adequate rationale for the imputation of efficiency to observed structures

tying the manager s hands constraining opportunistic managerial intervention we discuss and examine empirically a firm level equivalent of the ancient problem of tying the king s hands namely how to avoid managerial intervention that is undertaken to reap private benefits but is harmful to overall value creation that is managerial opportunism the link from managerial intervention to firm level value creation is moderated by employee motivation thus intervention in the form of managers overruling employees or reneging on delegation may demotivate employees particularly when the intervention is perceived as being unfair undertaken for personal gain etc we argue that a number of mechanisms such as managers staking their personal reputation employees controlling important assets strong trade unions etc may function as constraints on managerial proclivities to intervene thus reducing the problem of managerial opportunism we derive four hypotheses from these ideas and test them using path analysis on a rich dataset based on 329 firms in the spanish food and electric electronic industries

employee ownership and internal governance abstract this paper is designed to counter oliver williamson s hypothetical peer group model of organization with a discussion of three prosperous populations of employee owned firms worked owned scavenger companies taxi cooperatives and professional partnerships such as the large law firm it will be shown here that these firms are formed endure and prevail over their competition for reasons that williamson more than anyone else has taught us to appreciate in particular this paper will argue that the metering problems and human asset considerations that are so prominently featured in williamson s work are crucial for understanding the success of these firms

adoption of agricultural innovations in developing countries a survey this paper reviews various studies which have provided a description and possible explanation to patterns of innovation adoption in the agricultural sector the survey points out that the tendency of many studies to consider innovation adoption in dichotomous terms adoption nonadoption may not be appropriate in many cases where the actual decisions are defined over a more continuous range more attention needs to be given to the socio cultural and institutional environment in area studies so that their interrelation with economic factors affecting adoption can be inferred the presence of several interrelated innovations is another aspect that needs to be considered more carefully in future research since a number of simultaneous decisions may be involved furthermore the possibility of regular sequential patterns in adopting components of a new technological package should be specifically addressed in future studies finally the impact of differential adoption rates on land holding distribution merits attention in future research

incentives for helping on the job theory and evidence recent advances in incentive theory stress the multidimensional nature of agent effort and specifically cases where workers affect one anothers performance through helping efforts this article models helping efforts as determined by the compensation package and task allocation the model is tested with australian evidence on reported helping efforts within work groups the evidence consistently supports the hypothesis that helping efforts are reduced while individual efforts are increased when promotion incentives are strong piece rates and profit sharing appear to have little effect on helping efforts while task variety and helping efforts are positively correlated

do tournaments have incentive effects much attention has been devoted to studying models of tournaments or situations in which an individual s payment depends only on his or her output or rank relative to that of other competitors academic interest derives from the fact that under certain sets of assumptions tournaments have desirable normative properties because of the incentive structures they provide our paper uses nonexperimental data to test whether tournaments actually elicit effort responses we focus on professional golf tournaments because information on the incentive structure prize distribution and measures of individual output players scores are both available we find strong support for the proposition that the level and structure of prizes in pga tournaments influence players performance

transaction cost economics the comparative contracting perspective abstract gregory dow s assessment of transaction cost economics is both thoughtful and provocative although we agree on many matters these remarks focus on our differences i begin with a brief sketch of the framework out of which transaction cost economics operates i then examine the purported bias of transaction cost economics in favor of capital managed as against labor managed firms and my alleged failure to deal with downward opportunism dow s claim that transaction cost economics is given to functionalist excesses is considered next concluding remarks follow

an empirical investigation of oliver williamson s organization of work oliver williamson argues that the attributes of the employment contract like intermediate transactions in general are essentially driven by the specificity of assets in the case of the organization of work it is the particular attributes of labour that determines the transaction costs of any given governance structure the paper presents a stylized account of the transaction cost model of the efficient organization of work stressing an underlying tension and ambiguity in the transaction cost framework the paper exploits a unique dataset to test for the first time with british data williamson s transaction cost predictions concerning the nature of employment contracts williamson tacitly assumes that asset specificity is exogenous in general however there is evidence in the literature that labour specificity is endogenous to employment contracts the paper endeavours to demonstrate that there is empirical evidence to suggest that specialized labour is indeed endogenous in the transaction cost mode

the threat from within account managers concern about opportunism by their own team members it is well known that transaction specific investments tsis made in customers by account managers makes them vulnerable to opportunism by customers i e the targets of the investments the present research shows that tsis made in customers by account managers can also lead them to be concerned about internal opportunism by nontargets of the investments e g information technology or finance specialists in their own teams furthermore it shows that concern about internal opportunism leads account managers to engage in internal blocking of their own team members i e restricting their access to customers and to customer information which results in lower performance with customers this phenomenon is a conundrum in that account managers interested in stronger performance with customers appear to block the very functional specialists who can help them attain better performance this research also identifies two types of continuities account manager customer continuity and specialist customer continuity that moderate the relationship between tsis and concern about internal opportunism building on the literature in economics and organization theory our research suggests that cross functional teams that are designed to bring different functional areas together are more complex to manage than previously believed this paper was accepted by pradeep chintagunta and preyas desai special issue editors this paper was accepted by pradeep chintagunta and preyas desai special issue editors

the architecture of economic systems hierarchies and polyarchies the authors present new ways of looking at economic organizations andsystems individuals judgments entail errors they sometimes reject good projects and accept bad projects the architecture of an economicsystem specifying how the decision making units are organized togetherwithin a system who gathers what information and who communicates what with whom affects its performance both because it influences thenature of errors that individuals make within the system and becauseit has a critical effect on the aggregation of individuals errors theperformance of two polar architectures decentralized polyarchical versus centralized hierarchical decision making authorities are analyzed and compared copyright 1986 by american economic association

the public private sector gender wage differential in britain evidence from matched employee workplace data this article shows that little of the gender earnings gap in the public and private sectors in britain are explained by differences in employee characteristics the differences in workplace characteristics however make a significant sizeable contribution it is shown that performance related pay and company pension schemes are associated with higher relative earnings in the private sector whilst increased provision of family friendly employment practices in the public sector is associated with higher relative earnings for women

the power of incentives variable pay is usually defined as pay that is tied to some measure of worker output the most typical form of variable pay historically was the piece rate which was more prevalent during the early part of the 20th century than it is at the beginning of the 21st there is a resurgence in variable pay particularly as it relates to executives whose pay is tied to output through some mechanism like stock options or bonuses that depend on individual or firm performance why use variable pay the typical reaction is that variable pay provides incentives to put forth effort although true discrete pay schemes also generate incentives much of the confusion in the literature results from the use of the terms high powered and low powered incentives which connote difference in ability to elicit worker effort it is more informative to make distinctions between discrete and continuous pay and between inputbased and output based pay 2 pay structures can be summarized by the following equation

testing the theory of tournaments an empirical analysis of broiler production broiler chickens are raised by contract growers whose rewards depend explicitly upon relative performance we use data on the performance of broiler producers facing both tournament and linear performance evaluation compensation structures to test three predictions from the theory of tournaments that changes in the level of prizes that leave prize differentials unchanged will not affect performance that in mixed tournaments more able players will choose less risky strategies and that tournament organizers will attempt to handicap players of unequal ability or reduce mixing to avoid the disincentive effects of mixed tournaments our evidence is consistent with each prediction

decentralization aggregation control loss and costs in a hierarchical model of the firm abstract we study the multi divisional firm with the help of a model which links organizational structure and performance we add to our previous model an ability to delegate decisions at the cost of control loss and study its effects on both the structure and the average costs of the firm our technique involves the aggregation of observations and disaggregation of commands the aggregation while simplifying the calculations by superiors and saving time introduces error into their decisions the tradeoff between time and error is taken into account in the construction of the hierarchy

deferred compensation vs efficiency wages an experimental test of effort provision and self selection abstract we compare the ability of two common compensation structures efficiency wages ew and deferred compensation dc at inducing effort from workers we test predictions on effort provision and elicit preferences between the two wage structures the theoretical predictions on effort are generally well supported although we find over provision of effort with ew in consequence although the theoretical prediction that dc is more cost effective is supported the difference is small we also find a marked preference for ew that cannot be explained by risk aversion the two effects combine to largely dissipate any advantage that dc may have in inducing effort

the theoretical foundation of industrial relations and its implications for labor economics and human resource management the author identifies the core principle that forms the theoretical and policy foundation for the field of industrial relations labor is embodied in human beings and is not a commodity and argues that the field s two central dependent variables are labor problems and the employment relationship next he uses this core principle along with complementary ideas from institutional economics to develop a theoretical framework that not only explains the nature of the employment relationship and labor problems but also reveals shortcomings in related theories from labor economics and human resource management finally this framework is used to derive the fundamental theorem of industrial relations demonstrate that optimal economic performance occurs in a mixed economy of imperfect labor markets and organizations and show that a certain amount of labor protectionism promotes economic efficiency and human welfare

governance strategies and transaction costs in a renovated electricity market abstract this study applies a transaction cost economics tce framework to examine how economic agents adopt governance strategies in brazil s recently renovated electricity market in light of a well established tce model four attributes of transactions i e asset specificity uncertainty complexity and frequency are examined for three unregulated transactions between generating firms and final consumers the qualitative analysis of attributes unfolds into a comparative analysis of theory predicted governance strategies versus strategies observed in the marketplace it is argued that williamson s model continues to effectively predict the most efficient governance strategy in the sense of minimizing transaction costs and safeguarding idiosyncratic assets misalignment between theory predictions and observations however suggests that two additional concepts implementability and reputation must be examined alongside with williamson s four attributes of transactions in order to better explain strategic decisions in brazil s electricity market capital availability existence of compatible partners and reputation play crucial roles in explaining those decisions

national culture and corporate debt maturity abstract we investigate the influence of national culture on corporate debt maturity choice based on the framework of williamson we argue that culture located in social embeddedness level can shape contracting environments by serving as an informal constraint that affects human actors incentives and choices in market exchange we therefore expect national culture to be related to debt maturity structure after controlling for legal political financial and economic institutions using hofstede s four cultural dimensions uncertainty avoidance collectivism power distance and masculinity as proxies for culture and using a sample of 114 723 firm years from 40 countries over the 1991 2006 period we find robust evidence that firms located in countries with high uncertainty avoidance high collectivism high power distance and high masculinity tend to use more short term debt we interpret our results as consistent with the view that national culture helps explain cross country variations in the maturity structure of corporate debt

a transaction costs analysis of innovations in the organization of pharmaceutical r d abstract this paper uses transaction costs economics to analyze the increasing importance of vertical disintegration of r d by large pharmaceutical and chemical firms first it discusses three characteristics of the research based pharmaceutical industry then it shows that market failures related to long term joint venture r d contracts between firms and university laboratories are less significant than appears at first and may account for their striking increase over the past fifteen years

an analysis of production efficiency differentials in the philippines in the late seventies and early eighties policy makers in many developing encouraged extensive research to develop appropriate rice technology for unfavourable rainfed environments the question addressed in this paper is whether the farmers producing under the non irrigated rainfed environments are achieving the potential of the technology fully at the farm level the empirical analysis which concerns the farm level production behaviour of rainfed rice farmers in the philippines indicates a wide variation in production efficiencies extension advice and credit availability appear to be the two major factors influencing the gap between farmers actual and potential production levels

industry and firm effects on it diffusion processes firm level evidence in italian enterprises this article examines the antecedents and performance consequences of capabilities developed from the use of information technology it in a sample of 186 italian large enterprises attention is given to the influence of industry and firm characteristics on the creation of capabilities and on the returns from it investments our work makes three principal contributions first the it diffusion patterns reveal that these technologies have a dual nature some capabilities derived from it use i e administrative capabilities diffuse evenly across industries because the underlying technologies easily adapt to industry and firm specific conditions in contrast the use of it in supporting other capabilities such as those related to product development is less developed and more concentrated in the high tech and information service sectors second using a resource based perspective this articles shows the positive effects that firm specific preconditions have on the accumulation of it resources and capabilities that exhibit a rare diffusion at the industry level third given industry level differences in competitive environments we show how the value appropriation of capabilities that firms have developed using it depends on industry type with hi tech and information services industries exhibiting lower profit returns

long term relationships governed by short term contracts this paper studies the effects of contract duration on the incentive to invest in a relationship when its parties are rational and have perfect information and contracts are complete ex cept that short term contracts specify only current period actions t hen short term contracting distorts investment decisions only when t he efficient plan involves mainly sunk cost investment and the relati onship plays a consumption smoothing role there is a general but no t universal tendency to underinvest copyright 1988 by american economic association

pay equality and industrial politics personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers but it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme however when workers rewards are based on relative comparisons salary compression reduces uncooperative behavior that is detrimental to the firm relative comparisons imply that some reference group must be selected the major result is that within the relevant groups some wage compression is efficient

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

the future of personnel economics personnel economics is defined as the application of microeconomic principles to human resources issues that are of concern to most businesses the field now about 20 years old arose for three reasons first those of us who were teaching standard labour economics to business students encountered a disinterested audience business students believe that labour supply and demand unemployment investment in education and other topics which are of primary concern to labour economists are almost irrelevant to their future business careers their boredom with what we had to sell signalled that a change in the product might be warranted second the issues studied by human resources specialists were of interest to economists but the approach taken by the non economist was unsatisfying it was loose unfocused and ad hoc and lacked the general rigorous framework to which economists have grown accustomed the economist s reaction was to enter an industry where it was believed rents existed third the technology of economics changed as a result of some breakthroughs particularly those dealing with agency and contract theory economists were better equipped to tackle problems that had evaded them in the past

salaries and piece rates compensation can take many forms remuneration can come as pecuniary payments as fringes such as health and pension benefits or as a nonpecuniary reward such as plush office furniture that costs the firm less than it benefits the worker a significant literature has examined the trade offs between pecuniary and nonpecuniary compensation the modern work having been pioneered by rosen 1974 more recently another body of literature has examined the selection of method of total compensation ignoring the distinction between pecuniary and nonpecuniary payment this work has focused on risk and incentive factors it has resulted in comparisons of compensation based on absolute output levels to that based on relative performance it has also led to explorations of the relation of compensation to experience over the work life 2 little attention has been paid to what may be among the most important and obvious distinction in methods of compensation namely the choice between a fixed salary for some period of time that is paying on the basis of input and some workers receive compensation that is specified in advance and not directly contingent on performance instead it depends on an input measure such as hours worked for others compensation is directly related to output this essay is an attempt to predict a firm s choice of compensation method piece rates are defined more rigorously among the more important factors discussed are worker heterogeneity incentives sorting considerations monitoring costs and asymmetric information one result is that salary workers tend to be of lower quality and more homogeneous than are their piece rate counterparts numerous additional results are provided helpful comments by victoria lazear and yoram weiss are gratefully acknowledged support was provided by the department of labor and the national science foundation 1 see lazear and rosen 1981 stiglitz 1981 holmstrom 1982 green and stokey 1983 2 see lazear 1979 1981 and harris and holmstrom in press

the emergence of cooperation among egoists this article investigates the conditions under which cooperation will emerge in a world of egoists without central authority this problem plays an important role in such diverse fields as political philosophy international politics and economic and social exchange the problem is formalized as an iterated prisoner s dilemma with pairwise interaction among a population of individuals results from three approaches are reported the tournament approach the ecological approach and the evolutionary approach the evolutionary approach is the most general since all possible strategies can be taken into account a series of theorems is presented which show 1 the conditions under which no strategy can do any better than the population average if the others are using the reciprocal cooperation strategy of tit for tat 2 the necessary and sufficient conditions for a strategy to be collectively stable and 3 how cooperation can emerge from a small cluster of discriminating individuals even when everyone else is using a strategy of unconditional defection

the internal economics of the firm evidence from personnel data we analyze twenty years of personnel data from one firm the hierarchical structure is quite simple and stable career movements suggest that the employee s rate of learning and the firm s learning about ability are important there are promotion fast tracks exit rates vary little with tenure or salary the firm has personnel policies like those described in the internal labor markets literature although several theoretical preconditions for ilms such as ports of entry and exit are lacking job levels are important to compensation but there is also substantial individual variation in pay within levels our companion paper in this issue explores the wage policy of this firm

farm mechanization scale economies and polarization the japanese experience abstract whether economies of scale are the major factor underlying concentration of agricultural land in large farms has long been under debate the case study of japanese agriculture for the past three decades confirmed the tendency observed from international comparison that increasing returns in agricultural production emerge when economic development reaches a stage at which real wage rates begin to rise sharply it was found that the effect of scale economies was highly significant even though the intersectoral labor market effect was greater on land concentration the results imply that developing countries need not worry about mechanization to cause more unequal land distribution if factor markets are not unduly distorted

does hierarchical governance facilitate adaptation to changed circumstances abstract the transaction cost theory of economic organization maintains that by merging and adopting a hierarchical governance structure two firms can circumvent the bargaining problem which would impede adaptation to changing circumstances if they remained independent i analyze this claim in a simple model which allows the costs of hierarchical organization imperfect selective intervention to be evaluated alongside the costs due to the bargaining problem delays and disagreement both costs are due to informational asymmetries which are assumed to be unaffected by the choice of governance structure examples are presented which support the fundamental transaction cost proposition that hierarchical governance is preferred when parties are highly interspecific and there are significant gaps in the contract the intuition is that rational bargainers make less attractive offers in precisely those circumstances where adaptation is likely to be extremely valuable integration effectively separates the decision to adapt from the division of the resulting surplus and so is relatively efficient when substantial quasi rents are at stake

the salesperson as outside agent or employee a transaction cost analysis this descriptive study explores the reasons for integration of the personal selling function i e the use of employee direct salespeople rather than manufacturers representatives reps a hypothesized model is developed based on both transaction cost analysis and the sales force management literature data from 13 electronic component manufacturers covering 159 u s sales districts are used to estimate a logistic model of the probability of going direct in a given district results are shown to be stable across specification and estimation methods and to fit the data well the transaction cost model is generally supported the principal finding is that the greater the difficulty of evaluating a salesperson s performance the more likely the firm to substitute surveillance for commission as a control mechanism i e to use a direct sales force among other findings direct sales forces are also associated with complex hard to learn product lines and with districts that demand considerable nonselling activities several factors prove unrelated including company size the amount of travel a district requires and the importance of key accounts this article was originally published in marketing science volume 4 issue 3 pages 234 254 in 1985

evolution and organisational choice in nineteenth century britain this paper offers an explanation for the dearth of labor managed firms in western economies it argues that the historical evolution of labor managed firms put them at a disadvantage relative to their classical capitalist counterparts in britain the government played an instrumental role in creating the initial disadvantage specifically it took too long for the british government to remove the legal burden of unlimited liability and other company laws that were especially costly of labor managed firms early financial instruments were also ill suited to the establishment and continuation of producers cooperatives of the day since organizational forms and their supporting institutions must coevolve a path dependent process has continued to impede the development of labor managed firms c 1993 academic press inc copyright 1993 by oxford university press

some stylized facts on organization and its evolution abstract there is a striking difference between the large number of theoretical papers on firm organization and the lack of quantitative empirical evidence if on the one side economists are increasingly concerned with organization of firms on the other side organization still remains an ambiguous concept hardly analyzed empirically in this paper we develop a new empirical methodology based upon business history and previous theoretical works which allows us to describe some aspects of the organization of firms in quantitative terms this approach is instrumental to analyzing the hierarchical structure and the allocation of decision making activities in a sample composed of 438 italian metalworking plants we also study the dynamics of firm organization in the period 1975 1997 the results of the analysis show that the static choice of the organizational form crucially relies upon the loss of control phenomenon they also illustrate that the dynamics of hierarchical structure follows an inertial process characterized by incremental adjustments lastly both the organization of firms and more interestingly its evolution differ from one category of firms to another depending crucially on firm size

are ceos really paid like bureaucrats a common view is that there is little correlation between firm performance and ceo pay using a new fifteen year panel data set of ceos in the largest publicly traded u s companies we document a strong relationship between firm performance and ceo compensation this relationship is generated almost entirely by changes in the value of ceo holdings of stock and stock options in addition we show that both the level of ceo compensation and the sensitivity of compensation to firm performance have risen dramatically since 1980 largely because of increases in stock option grants

a resource based theory of the firm knowledge versus opportunism this paper develops a resource based knowledge based theory of the firm its thesis is that the organizational mode through which individuals cooperate affects the knowledge they apply to business activity we focus on the polar cases of organization within a firm as compared to market contracting there will be a difference in the knowledge that is brought to bear and hence in joint productivity under the two options thus as compared to opportunism based transaction cost theory we advance a separate yet complementary answer to the question why do firms exist our aim is to develop an empirically relevant and complementary theory of why firms are formed a theory based on irreducible knowledge differences between individuals rather than the threat of purposeful cheating or withholding of information we assume limited cognitive abilities on the part of individuals bounded rationality and assume that opportunistic behavior will not occur the latter allows us to determine whether resource based

workers trust funds and the logic of wage profiles this paper defines a concept a worker s trust fund which is useful in analyzing optimal age earnings profiles the trust fund represents what a worker loses if dismissed from a job for shirking in considering whether to work or shirk a worker weighs the potential loss due to forfeiture of the trust fund if caught shirking against the benefits from reduced effort this concept is used to show that the implicit bonding in upward sloping age earnings profiles is not a perfect substitute for an explicit up front performance bond or employment fee it is also shown that the second best optimal earnings profile in the absence of an up front employment fee pays total compensation in excess of market clearing in a variety of stylized cases

regulation of the employment relationship the old institutional perspective abstract this review article examines the rationale developed by the old institutional economists particularly john r commons and associates of the wisconsin school for the regulation of the employment relationship factors emphasized by the old institutionalists include the promotion of noneconomic social goals the deleterious effects of unrestrained self interest and competition the highly imperfect nature of labor markets the skewed distribution of property rights and labor s inequality of bargaining power the paper then describes the policy strategy and regulatory program advocated by the old institutionalists to improve the efficiency and equity of the market system implications of the old institutional perspective for current debates over the extent and form of employment regulation are then assessed

the firm as a communication network this paper analyzes how organizations can minimize costs of processing and communicating information communication is costly because it takes time for an agent to absorb new information sent by others agents can reduce this time by specializing in the processing of particular types of information when these returns to specialization outweigh costs of communication it is efficient for several agents to collaborate within a firm it is shown that efficient networks involve centralization that individuals delegate tasks to subordinates only if they are overloaded and that the number of transits to the top tends to be equalized across individual information items

reorganization of firms and labor market inequality much of the history of economic enterprise has involved reaping the benefits from specialization of labor by dividing increasingly fragemented tasks among different employees as vividly described already by adam smith in his wealth of nations this development was greatly facilitated through the rise of tayloristic organizations where standardized inputs are processed to yield standardized outputs and where different functional tasks e g administration production marketing design are performed in different departments coordinated through a hierarchy of managers these organizations common in both the manufacturing and service sectors testified to the importance of specialization of work in production as well as organization this pervasive organizational structure is now in retreat charlie chaplin at the conveyor belt in the movie modern times is no longer the prototype worker with hindsight the wave of change began well over a decade ago it has accelerated in recent years and may be expected to gather even more pace over the next decade the organization of many firms in both the manufacturing and service sectors is being progressively restructured this process calls into question the need for extreme specialization by skill specific occupation creates demands for new combinations of skills and thereby leads to new patterns of wage inequality the restructuring process is characterized by a number of complementary features first the organizational structure of firms is becoming flatter the new structure is built around teams that report to the central management with few if any intermediaries second production processes are being transformed the application of computer technology flexible tools and programmable multi task equipment reduces returns to scale and permits greater production flexibility third the flow of information within firms has been revolutionized the introduction of computerized data systems permits more individualilzed treatment of employess and customers facilitates the decentralization of decision making and enables employees to perform multiple tasks and exploit complementarities among them fourth firms offer broader product lines in smaller quantities responding more readily to customers requirements customer participation in product design is growing and there is greater emphasis on product quality and ancillary services and fifth the nature of work is changing occupational boundaries are breaking down as workers engage in multi tasking and work rotation these various aspects distinguish the traditional tayloristic organizations from what we shall call holistic organizations recent technological advances and improvements in physical and human capital have undoubtedly played a central role in driving the process whereby tayloristic organizations restructure into holistic ones the increasing use of computers to transmit information within firms and the rising versatility and programmability of equipment have increased the complementarities across tasks e g production marketing customer service product design that a given employee can exploit furthermore the growing amounts of all round knowledge that has been disseminated through the education systems over the past few decades has made young people increasingly capable of performing multiple tasks this accumulation of human capital has also changed people s preferences away from the monotonous single purpose tayloristic jobs to the frequently more varied and stimulating holistic ones in what follows we examine the consequences of these developments for the reorganization of work the move towards multi tasking and the consequent break down of occupational barriers the transformation of job opportunities and the implications for inequality in the labor market

technological progress for sustaining food population balance achievement and challenges the growth in land productivity in rice cultivation has slowed down substantially since the early 1990s due to technological progress reaching its limit in the irrigated ecosystem and nonavailability of suitable technologies for the unfavorable rainfed environments this development raises concern regarding the world s ability to meet the food population balance in the coming decades rice research must deal with a number of difficult problems to meet the challenge raising the yield ceilings of the current available rice varieties protecting the past yield gains in the irrigated ecosystem and using biotechnology tools to develop high yielding varieties for the rainfed systems that are tolerant to drought submergence and problem soils the speed and extent of meeting these challenges depends on the level of resources that can be mobilized to support crop improvement research in the public sector

works councils and employment growth in german establishments using data from german manufacturing establishments this article examines the relationship between works councils and employment growth taking the endogeneity of councils into account the estimates show a positive growth effect of works councils this suggests that the performance enhancing voice role of german works councils dominates their monopoly role moreover the findings of this study support the hypothesis that workers are more likely to implement a council to protect their quasi rents when the establishment is facing a long term crisis copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

market analysis technical change and income distribution in semi subsistence agriculture the case of bangladesh for the first time the model developed by hayami and herdt is applied to determine gains from modern varieties of rice in bangladesh and the distribution of these gains between consumers and producers the results suggest that consumers surplus is much greater than it would have been had the high yielding crop varieties hyvs not been introduced by keeping the real price lower than it would have been otherwise the modern varieties have tended to be income equalizing for urban consumers the hayami herdt partial model even suggests that given the relatively inelastic demand for rice in bangladesh the real cash income of producers has risen slightly as a result of these new technologies in reality however the impact of these changes on incomes of farmers and the distribution of income between those involved in production is more complex it is suggested that if a less partial view is taken and if account is taken of lower cost of obtaining home consumed produce the increase in income may be greater in any event there are dangers in using such a partial model to predict the developmental consequences of technological changes affecting a staple crop and attention needs also to be given to the possibility that the supply curve may not have the simple form and pivot in the way supposed by hayami and herdt while the hayami herdt model is simple to apply it is best used as a first approximation or starting point rather than a final solution it ignores a number of criteria that could be important in assessing new agricultural technologies such as their impact on the variability of benefits to producers and consumers and their consequences for sustainability of production furthermore the hayami herdt model does not deal specifically with changes in factor shares in farm production nor does it consider the impact on income distribution of the ownership and control of critical input like irrigation and imperfection in the rural credit market it is pointed out in our paper that the adoption of hyvs has been associated with important variations in factor shares in bangladeshi rice production analysis of available farm level data indicates that the relative share of labour has fallen suggesting an uneven distribution of gains from technological changes between the owners of non labour resources and those of labour resources however the absolute share of labour has increased and it seems that rural employment has risen as result of the new technologies

adjustment with imf lending abstract adjustment programs supported by the imf are frequently criticized by creditor countries as involving conditions which are too lax or once violated too easily modified or pushed aside at least as frequently these same conditions are criticized by international debtors or those adopting their interests for being too harsh and rigid neither side has explained very well 1 how exactly the fund impinges on the path of adjustment a country would choose unaided and what that path is 2 why the fund must be expected to accelerate adjustment to safeguard its objectives and 3 what limits the fund s ability to do so this paper attempts a theoretical deduction showing how this two sided conflict arises from the fund s obligation to adjudicate benefits and costs in negotiating programs acceptable not only to its debtor but also to its creditor countries

executive compensation and tournament theory empirical tests on danish data this article adds to the empirical literature on tournament theory as a theory of executive compensation i test several propositions of tournament models on a rich data set containing information about 2 600 executives in 210 danish firms during a 4 year period i ask are pay differentials between job levels consistent with relative compensation is pay dispersion between levels higher in noisy environments is the dispersion affected by the number of tournament participants is average pay lower in firms with more compressed pay structures does wider pay dispersion enhance firm performance most of the predictions gain support in the data

credit and risk in rural developing economies abstract this paper examines the theory of credit as a means of raising the productivity and living standards of producer households who face significant uncertainty a dynamic model with uncertainty is developed in which households choose how much to invest in a yield enhancing technology how much to consume and how much to save i find that while credit has important short and medium run benefits for productivity consumption and lifetime utility these benefits are not sustained in the long run indeed under reasonable parameter settings mean consumption will fall in contrast the paper shows that risk mitigation has sustained benefits for productivity lifetime utility and equality

on the political origin of corporate governance species although economies business practices and living standards have converged since wwii corporate structures continue to differ among the advanced economies of the world looking at the diversity of corporate structures of large sized firms around the world and over time would fascinate charles darwin this work develops a critical review of the literature on political determinants of corporate governance through the darwinian theory including some lamarckian aspects as darwin in his work on the origin of species explicates the diversity of species of tortoises finches and iguanas of the galapagos islands so darwinism may contribute in understanding the origin and the persistence of corporate diversity in particular this article takes into account politics driven variations their inheritances and the subsequent selection of advantageous corporate attributes

integrating the internal and external labour markets evidence of shifts towards atomized relations in the labor market appears to conflict with economic theories of the internal labor market the problem however lies not with the irrelevance of internal labor market systems and broader institutional structures but rather with the misspecification of theoretical analysis new institutional and labor market segmentation models are typically restricted to a static dualistic framework of comparative forms of work organization this paper outlines a dynamic approach to the study of internal labor markets the authors argue that internal and external competitive pressures mutually interact to shape employer strategy and the relative labor market positions of employees copyright 1998 by oxford university press

high performance work practices decentralization and profitability evidence from panel data the aim of this article is to test the effects on firm profitability of the adoption of both high performance work practices hpwps and changes in organizational design relating to the depth of the corporate hierarchy and the allocation of decision authority for this purpose we resort to panel estimates based on a longitudinal data set that includes information relating to 109 italian manufacturing single plant firms observed in the 1990s during 7 years the econometric results show that the adoption of hpwps leads to better performances especially when it is associated with the delegation of decision authority downward the corporate hierarchy copyright 2007 oxford university press

the impact of hierarchies on wages abstract hierarchical production theory has only one consistent prediction that wages increase with level in a hierarchy theoretical disagreement exists as to what causes this wage premium and how it might be affected by the number of levels of superiors above an employee by empirically analyzing these issues we find that i level one supervisors receive a premium due to some unobserved characteristic ii higher level supervisors receive a premium through higher rates of return on human capital and iii the marginal effect on wages of increasing the level of an employee declines with the number of levels above the employee

bounded rationality indeterminacy and the theory of the firm two issues have become increasingly apparent in attempts to apply the prevailing notions of economic rationality to the theory of the organisation of business firms the first goes under the rubric of bounded rationality this is hardly a new idea and has been forcefully brought to our attention in the work of simon and others although awareness of the problem in economics goes back at least to clark i9i8 i shall try to provide a more detailed taxonomy of bounded rationality than is usually done in particular it is important to distinguish between i costly rationality like the costs of observation communication and even computation that require only an extension of the standard savage paradigm and 2 truly bounded rationality like not knowing the implications of everything that one knows which as far as i know goes far beyond the savage paradigm the second issue which i shall call indeterminacy arises in attempts to apply the theory of strategic games to models of organisations namely one often faces a very large multiplicity of solutions which significantly weakens or even destroys the predictive power of the theory by solution i mean here the socalled non cooperative equilibrium usually associated with the names of auguste cournot and john nash and extended and refined byjohn harsanyi reinhard selten and others to cover games in which the players have incomplete information although indeterminacy can arise even in static games with complete information it seems to be especially prevalent in dynamic games and or games with incomplete information both of these issues have profound implications for the organisation of the firm in discussions of this topic it has become commonplace to set up the straw figure of the firm as a black box mysteriously choosing production and investment plans to maximise profits it is true that there are still undergraduate price theory textbooks that present this picture but economists have long been familiar with the phenomenon of the separation of ownership and management at least since the publication of the book by berle and means i932 if not before in fact adam smith had some trenchant comments on it i776 pp 264 5 this phenomenon is also referred to as the separation of ownership and control see fama and jensen i983 today one is likely to see this analysed in terms of the principal agent model with the owner s cast as the principal and the manager s as the agent

towards an economic theory of the multiproduct firm this paper outlines a theory of the multiproduct firm important building blocks include excess capacity and its creation market imperfections and the peculiarities of organizational knowledge including its fungible and taut character a framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high transactions costs associated with using various markets to trade the services of various specialized assets neoclassical explanations of the multiproduct firm are shown to be seriously deficient

some implications of growth for organizational form and ownership structure building on previous modeling of the separation between formal and real authority in organizations the paper investigates some implications of growth for the scope of integration and the internal organization of firms it stresses the role of headquarters overload and the differential and unmeasured cost of internal and external units in terms of their use of a scarce corporate resource namely headquarters attention the paper first shows how growth or other factors leads to restructuring for example through spin offs move of units to the periphery and refocus on core competencies it then looks at the internal allocation of tasks and studies whether overload considerations may induce a firm to create profit centers and abandon a functional or unitary form u form in favor of a multidivisional form m form

division of labor organizational coordination and market mechanisms in collective problem solving abstract this paper builds upon a view of economic organizations as problem solving arrangements and presents a simple model of adaptive problem solving driven by trial and error learning and collective selection institutional structures and in particular their degree of decentralization determine which solutions are tried out and undergo selection it is shown that if the design problem at hand is complex in terms of interdependencies between the elements of the system then a decentralized institutional structure is unlikely ever to generate optimal solutions and therefore no selection process can ever select them we also show that nearly decomposable structures have in general a selective advantage in terms of speed in reaching good locally optimal solutions

personnel economics past lessons and future directions presidential address to the society of labor economists san francisco may 1 1998 in 1987 the journal of labor economics published an issue on the economics of personnel since then personnel economics defined as the application of labor economics principles to business issues has become a major part of labor economics now accounting for a substantial proportion of papers in this and other journals much of the work in personnel economics has been theoretical in large part because the data needed to test these theories have not been available in recent years a number of firm based data sets have surfaced that allow personnel economics to be tested using two such data sets i give support to the implications of theories that relate to life cycle incentives tournaments piecework incentives pay compression and peer pressure i conclude that personnel economics is real it is far more than a set of clever theories it has relevance to the real world additionally firm based data make asking and answering new kinds of questions feasible the value of research in this area is h

radical political economy and the economics of labor markets this essay is the result of a long process involving many drafts and revisions i am grateful to duncan foley for the careful and constructive criticisms offered throughout the project the following people read the manuscript at different stages and although they often disagreed with me they generously provided helpful comments two anonymous referees for this journal samuel bowles william dickens greg dow robert drago richard edwards kathleen engel richard freeman james galbraith herbert gintis jody hoffer gittel sandfordjacoby tom kochan david levine lisa lynch paul osterman michael piore bob rebitzer gil skilman dan slesnick robert thomas and tsuyoshi tsuru comments from participants in seminars at the massachusetts institute of technology university of massachusetts at amherst and hitotsubashi university are also gratefully acknowledged

theoretical isolation and explanatory progress transaction cost economics and the dynamics of dispute two related goals are pursued first the development of and debates around oliver williamson s version of transaction cost economics are organised in terms of an emerging metatheoretical framework it proposes looking at economic theorising and its changes in terms of rival theoretical isolations which are often responses to challenging explanatory questions as a side product williamson s strategy of theorising is portrayed second using transaction cost economics as an illustration and as a source of inspiration the paper amends and refines the earlier framework of theoretical isolation by incorporating notions of explaining and explained items notions of progress in questions as well as increased causal penetration and increased degree of unification and the notion of the dynamics of dispute copyright 2004 oxford university press