NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Incentives, Information, and Organizational Design

Joseph E. Stiglitz

NBER Working Paper No. 2979 (Also Reprint No. r1341)
Issued in May 1989

This paper explores the interaction between incentives, information, and organizational design. It argues that the virtues of the market economy do not lie so much in the vision of competition and decentralization embodied in the Arrow-Debreu model, or the Lange-Lerner-Taylor analysis of market socialism, as they do in those more recent models analyzing competition as contests (Nalebuff-Stiglitz, Lazear-Rosen) and decentralization as a structure of decision making, in environments in which imperfect information is dispersed among numerous individuals (humans are fallible) and accordingly, some method of aggregation has to be found. While the traditional model exaggerates the virtues of the market (whenever markets are incomplete and information is imperfect, market allocations are almost never constrained Pareto efficient), it also understates its virtues: its ability to solve the problems of selection, incentives, and information gathering and aggregation which are the care problems in organizational design. The paper shows how this alternative perspective provides insights into the role that time plays in resource allocation- -for example, patent (R & D) races as well races to be the first to enter a market. We are able to provide an explanation, for instance, for why in times of economic crisis (such as wars) most economies abandon reliance on market mechanisms.

download in pdf format
   (348 K)

email paper

This paper is available as PDF (348 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2979

Published: Empirica, Vol. 16, No. 1, pp. 3-29, (1989).

Users who downloaded this paper also downloaded these:
Stiglitz w3641 The Invisible Hand and Modern Welfare Economics
Arnott, Greenwald, and Stiglitz w4533 Information and Economic Efficiency
Athey and Stern w6600 An Empirical Framework for Testing Theories About Complimentarity in Organizational Design
Stiglitz w2961 Markets and Development
Greenwald and Stiglitz w2938 Toward a Theory of Rigidities
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us