Organizational economics

Organizational economics (also referred to as economics of organization) involves the use of economic logic and methods to understand the existence, nature, design, and performance of organizations, especially managed ones.

Organizational economics is primarily concerned with the obstacles to coordination of activities inside and between organizations (firms, alliances, institutions, and market as a whole).

Organizational economics is considers three broad questions: why organizations exist rather than all economic activity being coordinated through markets; how organizations are structured internally, including their boundaries, governance mechanisms, and allocation of decision rights; and how organisations create and sustain competitive advantage, including through innovation, the development of capabilities, and the assembly of complementary assets.[1][2] The field draws on and contributes to microeconomics, industrial organization, strategic management, and the economics of innovation.

Organizational economics is known for its contribution to and its use of:

  • Transaction cost theory: developed by Ronald Coase (1937) and extended by Oliver Williamson (1975, 1985), this theory explains the existence and boundaries of firms through the costs of organizing economic activity via market exchange versus internal coordination. Firms arise when the transaction costs of using the market—including the costs of searching for information, negotiating contracts, and guarding against opportunism—exceed the costs of internal organisation.[3][4]
  • Economies of scope and the multiproduct firm: David Teece (1980, 1982) provided the economic foundations for understanding why firms diversify into multiple product lines, demonstrating that certain productive resources—particularly knowledge-based and intangible assets—can be deployed across multiple activities at lower cost within a single firm than through market exchange.[10][11] Teece, Rumelt, Dosi, and Winter (1994) extended this into an empirical theory of corporate coherence, explaining why diversified firms tend to expand into related rather than unrelated activities.[12]
  • Profiting from innovation: David Teece (1986) developed the "profiting from innovation" framework, which explains why the firms that pioneer commercially viable technologies frequently fail to capture the economic returns. The distribution of returns depends on the appropriability regime (the strength of legal and natural protections against imitation) and the firm's control of complementary assets (the manufacturing, distribution, and other capabilities required for commercialisation). When appropriability is weak, the firm that controls the bottleneck complementary assets captures the value, regardless of who created the innovation.[13] Sidney Winter (2006) positioned this framework as a major intellectual advance extending the contributions of Schumpeter and Arrow to the economics of innovation.[14]
  • Dynamic capabilities: David Teece, Pisano, and Shuen (1997) developed the dynamic capabilities framework, which explains how firms sustain competitive advantage in rapidly changing environments through the organisational capacity to sense emerging opportunities, seize them through investment and commitment, and transform the firm's resource base when conditions change.[15] With over 67,000 citations, it is among the most cited papers in the social sciences.[15]

Notable theorists and contributors in the field of organizational economics:[16][17][18]

References

  1. ^ Gibbons, Robert; Roberts, John (2013). The Handbook of Organizational Economics. Princeton University Press. ISBN 978-0-691-13279-2.
  2. ^ Teece, David J. (2010), Hall, Bronwyn H.; Rosenberg, Nathan (eds.), Technological Innovation and the Theory of the Firm, vol. 1, Elsevier, pp. 679–730 {{citation}}: Unknown parameter |booktitle= ignored (help)
  3. ^ Coase, Ronald H. (1937). "The Nature of the Firm". Economica. 4 (16): 386–405. doi:10.1111/j.1468-0335.1937.tb00002.x.
  4. ^ Williamson, Oliver E. (1985). The Economic Institutions of Capitalism. Free Press. ISBN 978-0-02-934820-4. {{cite book}}: Check |isbn= value: checksum (help)
  5. ^ Jensen, Michael C.; Meckling, William H. (1976). "Theory of the firm: Managerial behavior, agency costs and ownership structure". Journal of Financial Economics. 3 (4): 305–360. doi:10.1016/0304-405X(76)90026-X.
  6. ^ Hart, Oliver (1995). Firms, Contracts, and Financial Structure. Oxford University Press. ISBN 978-0-19-828881-7.
  7. ^ Penrose, Edith T. (1959). The Theory of the Growth of the Firm. Oxford University Press. ISBN 978-0-19-828977-7. {{cite book}}: ISBN / Date incompatibility (help)
  8. ^ Wernerfelt, Birger (1984). "A Resource-Based View of the Firm". Strategic Management Journal. 5 (2): 171–180. doi:10.1002/smj.4250050207.
  9. ^ Barney, Jay (1991). "Firm Resources and Sustained Competitive Advantage". Journal of Management. 17 (1): 99–120. doi:10.1177/014920639101700108.
  10. ^ Teece, David J. (1980). "Economies of scope and the scope of the enterprise". Journal of Economic Behavior & Organization. 1 (3): 223–247. doi:10.1016/0167-2681(80)90002-5.
  11. ^ Teece, David J. (1982). "Towards an economic theory of the multiproduct firm". Journal of Economic Behavior & Organization. 3 (1): 39–63. doi:10.1016/0167-2681(82)90003-8.
  12. ^ Teece, David J.; Rumelt, Richard; Dosi, Giovanni; Winter, Sidney G. (1994). "Understanding corporate coherence: Theory and evidence". Journal of Economic Behavior & Organization. 23 (1): 1–30. doi:10.1016/0167-2681(94)90094-9.
  13. ^ Teece, David J. (1986). "Profiting from technological innovation: Implications for integration, collaboration, licensing, and public policy". Research Policy. 15 (6): 285–305. doi:10.1016/0048-7333(86)90027-2.
  14. ^ Winter, Sidney G. (2006). "The logic of appropriability: From Schumpeter to Arrow to David Teece". Research Policy. 35 (8): 1100–1106. doi:10.1016/j.respol.2006.09.010.
  15. ^ a b Teece, David J.; Pisano, Gary; Shuen, Amy (1997). "Dynamic capabilities and strategic management". Strategic Management Journal. 18 (7): 509–533. doi:10.1002/(SICI)1097-0266(199708)18:7<509::AID-SMJ882>3.0.CO;2-Z.
  16. ^ "Nobel d'économie : « la reconnaissance d'un nouveau champ disciplinaire »". Le Monde.fr. 19 October 2016.
  17. ^ Robert Gibbons and John Roberts, eds. The handbook of Organizational Economics. Princeton University Press, 2013.
  18. ^ "Nobel Prize in Economics Awarded for Work on Business Contracts".


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