recently, we have had very little to say of any substance concerning the role of organizations. The theory outlined here is full of lacunae, and it is far from all-encompassing. But, following from a number of quite active areas of research, it does give a definite role to organization and culture within the organization. In so doing it helps to think (in terms of economics) about the role of organization / culture in strategy. (To readers who are economists: is this so?)
The questions I wish to leave noneconomists with (and have your answers to) are: Does this 'theory' hold together? From your perspectives, what is missing, and what is wrong? Is this imperialism of any value to social scientists other than economic theorists? Are the economic terms of discourse helpful in thinking about these questions?
I provide here a simple formal model of some of the ideas discussed in the chapter. Consider the situation where A must decide whether to contract with B to perform a task that is either easy or difficult, each with probability 1/2 A values performance of this task at $9 and is risk neutral. B is risk-averse, and the utility B derives from performing the task and being paid for it depends on the task's difficulty and the amount paid. We give B's von Neumann- Morgenstern utility as a function of the amount paid and the task's difficulty (for several values of the amount paid) in tabular form. (You can check that these numbers are consistent with utility functions that are concave in dollar amounts.)
We will assume that B can obtain utility equal to zero in any period when not allowed to perform this task for A. Moreover, we assume that B's marginal utility for money when the task is difficult and payment is $13 equals the marginal utility for money when the task is easy and payment is $3. (This is consistent with the numbers given in the table.)
We will not be explicit for a while as to which version of the story we are
|Payment to B|