# 🗄️🐢🐢 - 14.282 Organizational Economics > *"From Incentives to Control to Adaptation: How visible hands build equilibria"* ## Course Structure | **Module** | **Emoji** | **Focus** | **Battlefield** | **Key Papers (n)** | |-----------|-----------|-----------|-----------------|-------------------| | **M1: Pay for Performance** | 🐢 | Incentive design, multi-tasking, career concerns | 🐙 Operations / 🐢 Innovation | 8 core papers | | **M2: Managers & Productivity** | 🐙 | Management practices, productivity drivers | 🐙 Operations | 6 core papers | | **M3: Delegation & Communication** | 👾 | Authority, influence, decision-making | 👾 Cognition | 7 core papers | | **M4: Boundary of the Firm** | 🐅 | Integration, transaction costs, property rights | 🐢 Innovation / 🐅 CompBayes | 9 core papers | | **M5: Governance of Non-Integration** | 🐢 | Relational contracts, supply chains, partnerships | 🐢 Innovation | 6 core papers | | **M6: Capabilities & Culture** | 👾 | Organizational capacity, culture, state effectiveness | 👾 Cognition / 🐙 Operations / 🐢 Innovation | 4 core papers | --- ## Module 1: Pay for Performance 🐢 **Core Question**: How do we design incentives when performance is multi-dimensional? | **Paper** | **Author(s)** | **Year** | **Key Insight** | **Status** | |-----------|--------------|----------|-----------------|-----------| | Moral Hazard and Observability | Holmstrom | 1979 | Risk-incentive tradeoff | ⭐️ [[📜holmstrom79_moral_hazard]] | | Multitask Principal-Agent | Holmstrom & Milgrom | 1991 | Multi-task distortion | ⭐️ [[📜holmstrom91_multitask]] | | Managerial Incentive Problems | Holmstrom | 1982 | Career concerns | [[📜holmstrom82_career]] | | Relational Incentive Contracts | Levin | 2003 | Self-enforcing contracts | [[📜levin03_relational]] | | Subjective Performance Measures | Baker, Gibbons, Murphy | 1994 | Subjective evaluation | [[📜bgm94_subjective]] | | Rank-Order Tournaments | Lazear & Rosen | 1981 | Tournament incentives | [[📜lazear81_tournaments]] | | Moral Hazard in Teams | Holmstrom | 1982 | Team incentives | [[📜holmstrom82_teams]] | | From Incentives to Control | Baker, Gibbons, Murphy | 2023 | Formal-relational interaction | [[📜bgm23_control]] | **Critical Themes**: - Insurance vs. incentives tradeoff - Multi-tasking → distorted effort allocation - Career concerns as implicit incentives - Relational contracts complement formal incentives --- ## Module 2: Managers & Productivity 🐙 **Core Question**: Why do management practices vary so much, and what explains productivity differences? | **Paper** | **Author(s)** | **Year** | **Key Insight** | **Status** | |-----------|--------------|----------|-----------------|-----------| | Does Management Matter? Evidence from India | Bloom et al | 2013 | Management RCT in India | ⭐️ [[📜bloom13_management_india]] | | What Drives Differences in Management? | Bloom et al | 2019 | Management practice drivers | [[📜bloom19_management_drivers]] | | CEO Behavior and Firm Performance | Bandiera et al | 2020 | CEO time allocation | [[📜bandiera20_ceo]] | | Management and Shocks to Worker Productivity | Adhvaryu, Kala, Nyshadham | 2022 | Pollution shocks & management | [[📜akn22_management_shocks]] | | Challenges of Change: Women to Managers | Macchiavello et al | 2020 | Gender & management | [[📜macchiavello20_women_managers]] | **Critical Themes**: - Large, persistent productivity differences across firms - Management practices are measurable and impactful - Managers allocate time strategically - Context matters: shocks reveal management quality --- ## Module 3: Delegation & Communication 👾 **Core Question**: How should authority be allocated, and how does communication shape decisions? | **Paper** | **Author(s)** | **Year** | **Key Insight** | **Status** | |-----------|--------------|----------|-----------------|-----------| | Formal and Real Authority | Aghion & Tirole | 1997 | Authority allocation | ⭐️ [[📜aghion97_authority]] | | Informal Authority | Baker, Gibbons, Murphy | 1999 | Relational authority | [[📜bgm99_informal]] | | An Economic Approach to Influence Activities | Milgrom & Roberts | 1988 | Influence costs | [[📜milgrom88_influence]] | | The Allocation of Authority in Organizations | Bandiera et al | 2021 | Delegation RCT | [[📜bandiera21_delegation]] | | Managerial Autonomy on Firm Outcomes | Kala | 2024 | Autonomy effects | [[📜kala24_autonomy]] | | Power of Persuasion: Household Communication | Kala & McKelway | 2025 | Communication & decisions | [[📜kala25_persuasion]] | | Workplace Knowledge Flows | Sandvik et al | 2020 | Knowledge sharing | [[📜sandvik20_knowledge]] | **Critical Themes**: - Authority ≠ decision rights (formal vs. real) - Influence activities are costly - Communication shapes information aggregation - Delegation must balance local info vs. coordination --- ## Module 4: Boundary of the Firm 🐅 **Core Question**: What determines firm boundaries? When should firms integrate vs. outsource? | **Paper** | **Author(s)** | **Year** | **Key Insight** | **Status** | |-----------|--------------|----------|-----------------|-----------| | The Nature of the Firm | Coase | 1937 | Transaction costs | ⭐️ [[📜coase37_nature]] | | Vertical Integration: Market Failure | Williamson | 1971 | Hold-up problem | [[📜williamson71_integration]] | | Transaction Cost Economics | Williamson | 1979 | Governance structures | [[📜williamson79_tce]] | | Costs and Benefits of Ownership | Grossman & Hart | 1986 | Property rights theory | ⭐️ [[📜gh86_ownership]] | | Property Rights and Nature of Firm | Hart & Moore | 1990 | PRT foundations | [[📜hm90_property]] | | Influence-Cost Model | Powell | 2015 | Influence costs & boundaries | [[📜powell15_influence]] | | Vertical Integration and Input Flows | Atalay et al | 2014 | Empirical integration | [[📜atalay14_vertical]] | | Acquisitions, Productivity, Profitability | Braguinsky et al | 2015 | Japanese cotton spinning | [[📜braguinsky15_acquisitions]] | | Private Outsourcing and Competition | Banerjee et al | 2019 | Indonesia food distribution | [[📜banerjee19_outsourcing]] | **Critical Themes**: - Transaction costs explain integration decisions - Hold-up problem → underinvestment - Property rights affect ex ante investment incentives - Influence costs shape firm boundaries --- ## Module 5: Governance of Non-Integration 🐢 **Core Question**: How do firms collaborate without integration? What sustains relational contracts? | **Paper** | **Author(s)** | **Year** | **Key Insight** | **Status** | |-----------|--------------|----------|-----------------|-----------| | On the Management of Innovation | Aghion & Tirole | 1994 | Control allocation | [[📜aghion94_innovation]] | | Relational Contracts and Theory of Firm | Baker, Gibbons, Murphy | 2002 | RC & firm boundaries | ⭐️ [[📜bgm02_relational]] | | Value of Relationships: Kenya Roses | Macchiavello & Morjaria | 2015 | Supply shock & relationships | ⭐️ [[📜mm15_kenya_roses]] | | Competition and Relational Contracts: Rwanda Coffee | Macchiavello & Morjaria | 2021 | Competition effects | [[📜mm21_rwanda_coffee]] | | Strategic Default in Coffee Market | Blouin & Macchiavello | 2019 | Default incentives | [[📜blouin19_default]] | | Multinational Enforcement of Labor Law | Boudreau | 2024 | OSH committees | [[📜boudreau24_osh]] | **Critical Themes**: - Relational contracts sustained by future rents - Competition can undermine relationships - Supply shocks test relationship strength - External enforcement complements relational contracts --- ## Module 6: Capabilities & Culture 👾 **Core Question**: Where do organizational capabilities come from? How does culture affect performance? | **Paper** | **Author(s)** | **Year** | **Key Insight** | **Status** | |-----------|--------------|----------|-----------------|-----------| | Individuals and Organizations as Sources of State Effectiveness | Best, Hjort, Szakonyi | 2023 | Individual vs. org effects | ⭐️ [[📜bhs23_state_effectiveness]] | | Subjective Performance Evaluation & Influence | de Janvry et al | 2023 | China bureaucracy | [[📜dejanvry23_china]] | | Impacts of Employee Recognition Rewards | Kala & McKelway | 2025 | Recognition vs. rewards | [[📜kala25_recognition]] | | Contingent Effect of Management Practices | Blader, Gartenberg, Prat | 2020 | Practice complementarity | [[📜bgp20_contingent]] | **Critical Themes**: - State capacity depends on both individuals and systems - Culture affects how management practices work - Recognition can substitute for monetary rewards - Management practices have contingent effects --- ## Cross-Module Themes ### 🔄 Formal-Relational Interaction - M1 + M5: Formal incentives + relational contracts - M3 + M6: Formal authority + organizational culture ### 🌐 Boundaries & Governance - M4 + M5: Integration vs. relational governance - M2 + M4: Management practices across boundaries ### 👥 People & Systems - M2 + M6: Managers + organizational capabilities - M3 + M6: Authority + culture --- ## Battlefield Mapping | **Battlefield** | **Relevant Modules** | **Core Questions** | |----------------|---------------------|-------------------| | 🐢 **Innovation** | M1, M4, M5, M6 | How to incentivize innovation? How to define boundaries? How to govern partnerships? | | 🐙 **Operations** | M1, M2, M6 | How to design incentives? How to improve productivity? How to build capacity? | | 👾 **Cognition** | M3, M6 | How to delegate authority? How do capabilities form? | | 🐅 **CompBayes** | M4 | How to optimize transaction costs? When to integrate? | --- ## Reading Strategy ### Priority 1: ⭐️ Foundation Papers (8) Essential for understanding OE core models: - Holmstrom 1979, Holmstrom & Milgrom 1991 - Aghion & Tirole 1997 - Coase 1937, Grossman & Hart 1986 - Baker, Gibbons, Murphy 2002 - Bloom et al 2013 - Macchiavello & Morjaria 2015 - Best, Hjort, Szakonyi 2023 ### Priority 2: Recent Empirics (10) Cutting-edge empirical work: - All M2 papers (management & productivity) - Bandiera et al 2021 (delegation) - Kala 2024 (autonomy) - Kala & McKelway 2025 (persuasion, recognition) ### Priority 3: Extensions & Applications Additional readings for depth in specific modules --- ## Connection to Research **For Innovation Research (🐢)**: - M1: How to incentivize R&D? - M5: How do innovation partnerships work? **For Operations Research (🐙)**: - M2: What drives productivity differences? - M4: When to outsource vs. insource? **For Cognitive Research (👾)**: - M3: How to aggregate information? - M6: How does culture shape behavior? --- *"The visible hand builds equilibria that the invisible hand cannot achieve alone"* - Gibbons (2025)