Leibenstein: Organizational Structure (Micro-Micro, i.e. within firms)

Situation

Structure

Performance

High Information Costs allow:

Effort discretion

Organizational entropy

Necessarily incomplete contracts.

Level of competition is HEC among firms.

Personality.

Selective rationality.

Actors may be firms,

or employer & employee.

1. Competition

Pressure

from peers

from authorities

2. "Sheltering Activities"

Price agreements

Product differentiation

Advertizing, trademarks

3. "Entrepreneurial Acts"

New firms and products.

Be an "input completer"

4. Inert areas

4a. Japanese labor practices.* Relational contracts.

5. No inert areas

6. Mediation/Arbitration

1. Cost of commodity depends on price. Little X-inefficiency. Production function depends

on environment of the firm

(structure).

2. X-inefficiency. But see (4) below.

Free riding firm can benefit from sheltering activity of other firms.

3. Dynamic efficiency.

4. Firms do not minimize cost.

But, reduce conflict among actors.

Stabilize intra-firm behavior

4a. Dynamic efficiency.

5. Sabotage - resistance

6. Less down time.

Distribution affects the size of the pie.

Hypothesis: Competitive pressure reduces x-inefficiency, but may lead to resistance and no room to settle internal conflicts which if left to fester, may reduce output.

*Hire only at beginning level, pay on basis of seniority, consensus decision making, flexible work rules, large part of pay in bonuses, pay for skills acquired, small part of cash flow paid to stock holders while most is reinvested. Emphasis on directional allocation of resources rather than on MC = MR at the moment.

810-SSP\Leibenst.htm