Coordination Problems in the Theory of the Firm
| Nicolai Foss |
Many textbooks (e.g., this one or this one) begin by noting that there are two fundamental problems of economic organization, namely the coordination problem and the motivation problem — and then devote 95% of the space to the latter problem. (In a paper published in 1993 (but written in 1989), I proposed that extant theories of the firm could be understood as taking either a PD (-like) game or a coordination game as the fundamental underlying structure of interaction. In my reading, capabilities theories were about coordination problems, while mainstream organization economics fundamentally started from PD-like situations; this paper develops the argument a little bit).
Important work has been done on coordination problems in the context of the theory of the firm by Colin Camerer and Mark Knez (e.g., here), Phanish Puranam and Ranjay Gulati (here), Luis Garicano (e.g., here), Birger Wernerfelt (e.g., here), and, of course, co-blogger Dick Langlois (check his CV here on O&M — most of his stuff on economic organization is about coordination). One could also make the point that large parts of traditional organizational design theory (of the information processing/contingency variety, including Marschak & Radner’s team theory) are really about coordination problems rather than motivation problems. Dick Langlois has long argued that Coase (1937) is fundamentally about coordination rather than motivation.
This is definetely something; however, compared to the enormous outpouring of work on motivation problems, it is fair to say that coordination problems are neglected, although there are reasons to suppose that they are quite important: There are plenty of examples of highly motivated people utterly failing with respect to organizing and coordinating.
I just came across an excellent paper, “Coordination Neglect: How Lay Theories of Organizing Complicate Coordination in Organization,” that deals with a number of obstacles to coordination rooted in heuristics (“lay theories”) that individuals apply, for example, when setting up a division of labour in an organization. Notably, individuals systematically neglect task interdependencies. They also fail to communicate sufficiently because of knowledge bias and they are poor at translating problems for others. There are plenty of useful illustrations and anecdotes in the paper, making it excellent as a companion to a traditional motivation/incentive-focused textbook in a theory of the firm class. Highly recommended!