Organizational Economics Theory : A Fundamental And Universal Problem Of Organizations

784 WordsFeb 29, 20164 Pages
Organizational Economics Theory Organizational Economics deals with a fundamental and universal problem of organizations: How to induce managers and other employees to act in the best interests of those who control ownership or, in the case of government agencies and nonprofit organizations, those who have the authority to control policy and resource decisions. Also rooted in the second half of the 20th century Organization Economics Theory is concerned with agency theory, behavioral theory, incomplete contract theory, transaction cost economics, and game theory (Shafritz, Jang, & Ott, 2011). Unlike typical neoclassic economic models that see organizations as systems for managing productions costs and schedules, key questions organizational economists address include the contractual nature of firms, bounded rationality, the significance of investment in specific assets, the distinction between specific rights and residual rights and the effects of imperfect information. (Shafritz, Jang, & Ott, 2011). Additional interests lie in the concepts and tools from the field of economics to the study of the internal process and structures of the firms. Assumptions of Organizational Economics Theory: organizations are superior to markets in managing complex and uncertain economic exchanges because they reduce the cost of transactions; different approaches to organizational economies share a common attention to explaining the emergence and expansion of organizations, hierarchies,
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