TY - JOUR
T1 - Why organizations fail
T2 - Models and cases
AU - Garicano, Luis
AU - Rayo, Luis
N1 - Funding Information:
The Li lab has been supported by the Canadian Institutes of Health Research (CIHR, grant numbers PJT-148610 and PJT-168861 ); the Natural Science and Engineering Research Council in Canada (NSERC, grant number RGPIN-2017-03787 ); the Canada Foundation for Innovation (CFI, grant number 35816 ); the Mitacs Accelerate grant sponsored by Precision Nanosystems Inc. (grant number IT13402 ); the National Organization for Rare Disorders - the Appendix Cancer / Pseudomyxoma Peritonei Research Foundation (grant number 18004 ); the Canadian Cancer Society (grant number 706231 ); the Michael Smith Foundation for Health Research (grant number 18711 ); and the Faculty of Pharmaceutical Sciences at the University of British Columbia (UBC). S.-D.L. holds the Angiotech Professorship in Drug Delivery. R.B. is supported by a postdoctoral fellowship from the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation, grant number 423802991 ); and P-H.C. receives the 4-year scholarship from UBC.
PY - 2016/3
Y1 - 2016/3
N2 - Organizations fail due to incentive problems (agents do not want to act in the organization's interests) and bounded rationality problems (agents do not have the necessary information to do so). This survey uses recent advances in organizational economics to illuminate organizational failures along these two dimensions. We combine reviews of the literature with simple models and case discussions. Specifically, we consider failures related to short-termism and the allocation of authority, both of which are instances of "multitasking problems"; communication failures in the presence of both soft and hard information due to incentive misalignments; resistance to change due to vested interests and rigid cultures; and failures related to the allocation of talent and miscommunication due to bounded rationality. We find that the organizational economics literature provides parsimonious explanations for a large range of economically significant failures. (JEL D21, D23, D82, D83, M10).
AB - Organizations fail due to incentive problems (agents do not want to act in the organization's interests) and bounded rationality problems (agents do not have the necessary information to do so). This survey uses recent advances in organizational economics to illuminate organizational failures along these two dimensions. We combine reviews of the literature with simple models and case discussions. Specifically, we consider failures related to short-termism and the allocation of authority, both of which are instances of "multitasking problems"; communication failures in the presence of both soft and hard information due to incentive misalignments; resistance to change due to vested interests and rigid cultures; and failures related to the allocation of talent and miscommunication due to bounded rationality. We find that the organizational economics literature provides parsimonious explanations for a large range of economically significant failures. (JEL D21, D23, D82, D83, M10).
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U2 - 10.1257/jel.54.1.137
DO - 10.1257/jel.54.1.137
M3 - Review article
AN - SCOPUS:84962497886
VL - 54
SP - 137
EP - 192
JO - Journal of Economic Literature
JF - Journal of Economic Literature
SN - 0022-0515
IS - 1
ER -