The Evolution of Organizational Conventions and Gains from Diversity

Stanford University Economics Working Paper No. 97-032

39 Pages Posted: 10 Jul 1998

Date Written: 1997

Abstract

The first part of this paper introduces a framework for dealing with the information systematic aspect of an organizational form as a choice variable rather than as technological data. It identifies two generic forms of organizations when economic agents are bounded in their information processing capacity but try to overcome the limits through cooperation in the organization. Either of the two forms may not have an absolute advantage, independent of parameters describing industrial technology and market conditions nor the level of information processing capacity of agents. Using evolutionary game theoretic tools, the second part of the article investigates such questions as: Is a particular form of organization likely to grow and establish itself as a convention in each economy even if it lacks absolute advantage across industries. Or, is an efficient arrangement of organizational forms likely to emerge in each economy entailing a diversity of organizational forms across industries? If the latter is the case, how can a barrier to transition from an inefficient organizational convention to an efficient cross-industrial arrangement be reduced? Even if the barrier is high, can potential gains from diversity be realized through regional specialization and free trade? Is selection between conventions (and diversity) completely determined in a path-dependent manner, or does foresight of the agents play a role?

JEL Classification: D21, D23, L22

Suggested Citation

Aoki, Masahiko, The Evolution of Organizational Conventions and Gains from Diversity (1997). Stanford University Economics Working Paper No. 97-032, Available at SSRN: https://ssrn.com/abstract=106688 or http://dx.doi.org/10.2139/ssrn.106688

Masahiko Aoki (Contact Author)

Stanford University ( email )

E314 Encina Hall
Stanford, CA 94305-6015
United States
415-723-3975 (Phone)
415-725-5702 (Fax)

HOME PAGE: http://www.stanford.edu/~aoki

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