Information and Organization: A New Perspective on the Theory of the Firm

Information and Organization: A New Perspective on the Theory of the Firm

Information and Organization: A New Perspective on the Theory of the Firm

Information and Organization: A New Perspective on the Theory of the Firm

Synopsis

Information and Organization offers a vision of the economy as a system of structured information flow, counterbalancing the more conventional view of a simple flow of material goods. The structuring is effected by institutions and, in particular, by firms, which specialize in processing theinformation needed to allocate resources. In place of the orthodox emphasis on the adversarial use of asymmetric information, the book stresses the use of information for creative purposes--for decision-taking and co-ordinating the use of resources. Mark Casson's 'new perspective' has grown out of fifteen years of having to modify the conventional theory to make it work properly. The discussion is rigorous, confronting rather than evading issues; and it develops a new diagrammatic technique to chart information flow. For all this, the book iswritten in accessible language and will be a solid foundation for future research efforts by scholars and graduate students in management studies, business and economic history, and instutional economics.

Excerpt

It is only recently that information has begun to receive the attention from economists that it really deserves. Many insights—theoretical and practical, contemporary and historical—will be derived from the economics of information once the relevant theory becomes better developed. This book explains the wider significance of some elementary aspects of the economics of information. It offers a vision of the economy as an information system, to counterbalance the more conventional view of the economy as a system of material flow. The focus is on the handling of data relating to goods and services rather than on the handling of goods themselves.

This vision is inspired by the work of Hayek (1937), Richardson (1960) and Marschak (1974). Although each of these writers has a different emphasis, they all perceive economic institutions as mechanisms for allocating decision-making responsibilities and for structuring information flow. In this context firms and markets are simply alternative institutional means of achieving the same objective, as explained by Coase (1937).

On this view, the structure of institutions existing at any given time can be interpreted as a rational response to the social need to economize on information costs. As information costs change, so too does the institutional structure of the economy. In particular, as technological progress drives down communication costs over longer distances, so institutions adapt by increasing the geographical scope of their activities. This institutional evolution, in its turn, supports a higher level of economic development.

The role of information in the coordination of economic activities was first emphasized by Hayek (1937), who explained how the market system motivates entrepreneurs to search out information for their private use. This information is then communicated to other people indirectly in the form of price quotations. In this way everyone becomes aware of the relative scarcities of different products. Each individual who scans price information therefore receives sufficient guidance to make decisions which are in harmony with those of other people.

Richardson (1960) too emphasized the importance of information to the coordination process. He was concerned with the general issue of how a complex economic system is coordinated, and in particular with the coordination

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