On the Economic Approach to Institutional Organization
Chapter 4: Taylor’s, Simon’s and Williamson’s Search of Organizational Economics: Incentive Structures, Dilemmatic Interest Conflict and Mutual Gains
A higher degree of . . . rationality can . . . be achieved, because the environment of choice can be . . . deliberately modified . . . One function that organization performs is to place the organization member in a psychological environment that will adapt their decisions to the organization objectives and will provide them with the information needed to make these decisions correctly . . . The rational individual is and must be, an organized and institutionalized individual. If the severe limits imposed by human psychology upon deliberation are to be relaxed, the individual must in his decisions be subject to the influence of the organized group in which he participates. (Simon, 1945, pp. 79, 102) Transactions, which differ in their attributes, are assigned to governance structures, which differ in their organizational costs and competencies, so as to effect a discriminating (mainly transaction cost economizing) match. (Williamson, 1985, pp. 387–8) This chapter examines whether Taylor, Simon and Williamson analyzed institutional organization structures through a non-behavioral, economic approach or whether they favored a behavioral one, which directly focused on human nature. In particular, the application of the conflict model ‘dilemma structure’ and suggestions on situational analysis and intervention with incentive structures are traced. Other conceptual elements of organizational economics, especially the ideas of ‘human capital’ and ‘economic man’, are discussed in later chapters. The chapter also examines how far an institutional economic reconstruction of Taylor’s, Simon’s and Williamson’s organization theories does not succeed. A behavioral approach to social conflict is searched for in their studies. The following suggests that, in considerable degrees,...
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