Allocating Information Costs in a Negotiated Information Order: Interorganizational Constraints on Decision Making in Norwegian Oil Insurance

Carol A. Heimer Using as examples the insurance of large permanent installations and mobile oil rigs in the Norwegian North Sea, this paper describes how information is used in interorganizational decision making. What information is satisfactory for decision making is negotiated among insurers and is therefore partly determined by the bargaining power of participating organizations. The result is a negotiated information order that determines what information will be used in decision making and which organizations pay for collecting and using new information, allowing others to satisfice and therefore economize on information costs. The inflexibility of more powerful organizations forces dependent organizations to do the innovating. The case studies show that policyholders have been forced to act as external information buffers for oil insurers, so insurers could function satisfactorily without using all the relevant information. The negotiated information order is thus an interorganizational structure that helps determine when an organization will optimize and when it will satisfice, and what its satisficing rules will be.