How to get what you want when you do not know what you want

In this paper we present a model of the interplay between learning, incentives and the allocation of decision rights in the context of a generalized agency problem. Within this context, not only actors face conflicting interests but diverging cognitive ?visions? of the right course of action as well. We show that a principal may obtain the implementation of desired organizational policies by means of appropriate incentives or by means of appropriate design of the allocation of decisions, when the latter is cheaper but more complex. We also show that when the principal is uncertain about which course of action is more appropriate and wants to learn it from the environment, organizational structure and incentives interact in non-trivial ways and must be carefully tuned. When learning is not at stake, incentives and organizational structure are substitutes. When instead learning is at stake, organizational structure and incentives may complement each other and have to be fine tuned according to the complexity of the learning process and the competitive pressure which is put on fast or slow learning.

[1]  B. E. Partridge,et al.  The Nature of Managerial Work , 1974 .

[2]  B. Frey,et al.  Motivation Crowding Theory: A Survey of Empirical Evidence , 2000 .

[3]  P. Young,et al.  Cognition and motivation. , 1961 .

[4]  Daniel A. Levinthal,et al.  Looking Forward and Looking Backward: Cognitive and Experiential Search , 2000 .

[5]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[6]  J. March,et al.  A Behavioral Theory of the Firm , 1964 .

[7]  Michael X Cohen.  Conflict and Complexity: Goal Diversity and Organizational Search Effectiveness , 1984, American Political Science Review.

[8]  Scott E. Page,et al.  Two measures of difficulty , 1996 .

[9]  Nicolai J. Foss,et al.  Cognition and Motivation in the Theory of the Firm: Interaction or "Never the Twain Shall Meet"? , 2004 .

[10]  Contracts and Conflict in Organizations , 2009 .

[11]  Paul R. Milgrom,et al.  Economics, Organization and Management , 1992 .

[12]  Henry Mintzberg.  The Nature of Managerial Work , 1974, Operational Research Quarterly (1970-1977).

[13]  Robert A. Burgelman.  Fading Memories: A Process Theory of Strategic Business Exit in Dynamic Environments , 1994 .

[14]  M. C. Jensen,et al.  Specific and General Knowledge and Organizational Structure , 1995 .

[15]  J. Tirole,et al.  Formal and Real Authority in Organizations , 1997, Journal of Political Economy.

[16]  S. Winter,et al.  An evolutionary theory of economic change , 1983 .

[17]  Daniel A. Levinthal,et al.  Bridging Contested Terrain: Linking Incentive-Based and Learning Perspectives on Organizational Evolution , 2003 .

[18]  R. Radner.  The organization of decentralized information processing , 1993 .

[19]  O. Hart,et al.  Property Rights and the Nature of the Firm , 1988, Journal of Political Economy.

[20]  P. Bernholz.  Property rights, contracts, cyclical social preferences and the Coase theorem: A synthesis , 1997 .

[21]  Daniel A. Levinthal,et al.  Exploration and Exploitation in Organizational Learning , 2007 .

[22]  J. Stiglitz,et al.  The Architecture of Economic Systems: Hierarchies and Polyarchies , 1984 .

[23]  Jack A. Nickerson,et al.  A Knowledge-based Theory of the Firm - A Problem-solving Perspective , 2004, Organ. Sci..

[24]  G. Dosi,et al.  Learning how to govern and learning how to solve problems: on the co-evolution of competences, confl , 1995 .

[25]  U. Fischbacher,et al.  Why Social Preferences Matter - the Impact of Non-Selfish Motives on Competition, Cooperation and Incentives , 2002 .

[26]  Herbert A. Simon,et al.  The Sciences of the Artificial , 1970 .

[27]  Nicolai J. Foss,et al.  Building Micro-foundations for the Routines, Capabilities, and Performance Links , 2007 .

[28]  KaplanSarah,et al.  Inertia and Incentives , 2005 .

[29]  R. Burton,et al.  A Computer Simulation Test of the M-Form Hypothesis , 1980 .

[30]  L. Marengo,et al.  Social choice on complex objects: A geometric approach , 2008 .

[31]  Luigi Zingales,et al.  Power in a Theory of the Firm , 1996 .

[32]  Daniel A. Levinthal.  Adaptation on rugged landscapes , 1997 .

[33]  Ernst Fehr,et al.  Do Incentive Contracts Undermine Voluntary Cooperation? , 2002 .

[34]  Shaker A. Zahra,et al.  The dynamic firm : the role of technology, strategy, organization, and regions , 1999 .

[35]  Giovanni Dosi,et al.  Organizational Capabilities, Patterns of Knowledge Accumulation and Governance Structures in Business Firms: An Introduction , 2008 .

[36]  Stuart A. Kauffman,et al.  The origins of order , 1993 .

[37]  R. Rumelt,et al.  Inertia and Transformation , 1995 .

[38]  M. Porter,et al.  What Is Leadership: The CEO's Role in Large, Complex Organizations , 2010 .

[39]  H. Bester.  Externalities, communication and the allocation of decision rights , 2005 .

[40]  Nicolai J. Foss,et al.  ‘Tying the manager's hands’: constraining opportunistic managerial intervention , 2006 .

[41]  Jan W. Rivkin,et al.  Speed and Search: Designing Organizations for Turbulence and Complexity , 2005, Organ. Sci..

[42]  Daniel A. Levinthal,et al.  Landscape Design: Designing for Local Action in Complex Worlds , 1999 .

[43]  R. Langlois,et al.  Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization , 1997 .

[44]  Giovanni Dosi,et al.  Division of labor, organizational coordination and market mechanisms in collective problem-solving , 2005 .

[45]  Alexander L. George,et al.  The Case for Multiple Advocacy in Making Foreign Policy , 1972, American Political Science Review.

[46]  Scott E. Page,et al.  Problem Solving by Heterogeneous Agents , 2001, J. Econ. Theory.

[47]  F. Hayek.  The economic nature of the firm: The use of knowledge in society , 1945 .

[48]  Fama Agency,et al.  the Theory of the Firm, Journal of Political Economy 2, . , 1980 .