JF....A.A.S., October 1996

Simon's (J.E.P. '91) Categories in SSP Terms: Organizations and Markets




Good = Labor

1. The extent (cost) to which "obedience to command (an output standard/quality) is to be observed w/o losing the benefit of delegation. p.32. This is a "monitoring" or information cost. Problem of attributing, outcomes to individuals. p. 34. Plus continued need to create the standard.

Uncertain future profit function.

Above plus HEC -- "benefits jointly gained and shared by all". Good = overall success of the firm whose ingredients can't be fully specified by managers. "Problem of the commons" p. 34*

Bounded rationality

1. Mkt. negotiated employment contract defines authority of employer. (administration)

Because of situation, it is necessarily incomplete.


2. Market rewards tied to individual effort.

Opportunistic with guile.


3. Loyalty/Commitment. Identification with organizational goals. Pride in work.(Status)

Learned life-time habits. Social influence. (Similar to North's role of culture and ideology.)

"Docility = enlightened selfishness"

4. Coordination

a. By prices

b. By quantities. Inventory SOP's

1. Either lose benefit of delegation or inefficiencies occur because of opportunism within large zone of discretion.

MVP of labor.

Profit of firm.

2. Inefficient, counter-productive. Salespeople misrepresent product, ignore safety, shift problem to other departments.

Free-riding p.34.

3. Workers exert more than minimally enforceable effort. Creatively contribute to and define firm's tasks and success.

MVP of labor.



4a. Prices work if known and predictable. Growth of organizations has little to do with efficiency. p. 42.

b. This is often the only available coordinating process.

Note: Category #4 is not a separate structure but cuts across and restates the previous three.

*Would there be a "problem of the commons" if measurement costs were low?


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