The Economics of Emergency Meetings

I. INTRODUCTION Meetings are critical to the success of organizations. Meetings allow organizations to coordinate information, discuss strategies, and realign policies to meet their objectives. For example, firms schedule regular meetings to assess whether current pricing is in line with the changing market demand. International organizations such as the United Nations schedule regular meetings to discuss worldwide political conditions and assess the need for military or humanitarian support. Meetings can also be interpreted more loosely to represent any situation where individuals get together and share information toward a common purpose, such as the financial audit of a firm. In fact, it is difficult to think of a single organization that does not require some form of meetings to make decisions and set policy. Organizations typically set meeting schedules in advance. The frequency of these scheduled meetings tends to be based on institutional factors, and in many instances, does not change over time. Predetermined meeting schedules can improve efficiency by allowing for the collection and processing of information prior to the meeting, as well as the coordination of individual schedules. However, conditions often change unexpectedly between scheduled meetings and policies set at a previous meeting are no longer optimal. This may necessitate the need for organizations to schedule an emergency meeting. While emergency meetings allow the flexibility to handle unscheduled deviations from the optimal policy set at the last scheduled meeting, they are less efficient than scheduled meetings because they do not allow for an in-depth and thorough analysis of the situation. Statements from former Federal Reserve Chairman Alan Greenspan allude to the fact that meetings planned in advance are preferable to emergency meetings. Chairman Greenspan stated during an emergency meeting of the Federal Open Market Committee (FOMC), "I think we should be prepared, if it turns out to be the consensus of the Committee, ... to wait until we can have a full-scale FOMC deliberation and then make decisions" (FOMC 2003). We develop a real options model of emergency meetings. In our model, unanticipated changes to the economy occur randomly. When it appears that there have been sufficiently large deviations to the economy since the last meeting, it is worth paying the cost of an emergency meeting. The emergency meeting is not as thorough as a regular meeting. However, when there are large deviations it is worthwhile to pay the cost of an emergency meeting and optimize policy based on the incomplete analysis of the emergency meeting rather than wait until the next regular meeting. We apply our model of emergency meetings to two organizations that rely heavily on meetings to set policy: the FOMC of the U.S. Federal Reserve system and the Organization of the Petroleum Exporting Countries (OPEC). The FOMC schedules eight regular meetings a year to assess national economic conditions and determine the appropriate direction of U.S. monetary policy. These regularly scheduled meetings involve a thorough analysis and discussion of the state of the macroeconomy and policy direction. Similarly, OPEC depends on regular meetings to set policy. Since its inception in 1960, OPEC has scheduled two regular meetings each year in March and September to discuss and set policy. Although the variables that make up the relevant economic or financial conditions may be difficult to measure, we have precise data on the number and timing of regular and emergency meetings. This allows us to test the theory even if we do not observe all the variables driving the decision to call an emergency meeting. OPEC has called 60 such emergency meetings since 1960, while the FOMC has called 123 emergency meetings since 1978. (1) The rest of the paper is organized as follows. Section II presents a review of the related literature, while Section III presents our model. …