Thursday, February 21, 2013

Running things

Here is a nightmare:  You own or manage a large (or not so large) business or organization.  How do you manage all of the people involved? How do you incentivize and monitor them? How can you be reasonably sure they are all "on the same page"? How do you manage all of the various transactions costs involved?

Business schools have been teaching classes that mull these challenges for many years.  Ronald Coase famously brought these problems to the attention of economists. The firm is no longer a "black box" that can be adequately described as the challenge of equating marginal this to marginal that to marginal something else.

The variety of actual rules in play is much more complex and much more interesting. Ray Fisman and Tim Sullivan provide a very readable tour of the problems and approaches in The Org: The Underlying Logic of the Office.