Organizational Economics

By Robert Gibbons (MIT) and John Roberts (Stanford)

Organizational economics is the application of economic logic and methods to understand the nature, design and performance of organizations, especially managed ones like business firms. Several distinguished economists addressed organizational issues during the first two centuries of the discipline, but the profession as a whole paid scant attention to organizations. During the 1970s, however, a collection of seminal contributions laid the foundations for the modern field. As a result, the past thirty-five years have witnessed two developments: first, economists (often in business schools) have produced a large and growing literature directly addressing organizational issues; second, economists in other fields (beginning with industrial organization and labor, and now including corporate finance, development, political economy, and international trade) have asked organizational questions and applied organizational results within their own fields.

Here we sketch these developments: the roots of organizational economics during the first two centuries of the discipline; the seminal contributions from the 1970s; and the rapid recent growth of both research in organizational economics per se and applications of this research in other fields of economics. All this might constitute an “Emerging Trend,” but we see it as prelude to the story we wish to tell (and the future we hope to help shape), in three related respects. First, while we understand both career pressures and comparative advantage, we see few organizational economists studying related work in other social sciences. Second, we see important gaps in what economists have studied within organizational economics. Third, while it is both common and perhaps natural for economists to be trained to use markets as the benchmark and framework for their thinking, we follow Simon (1991) in (a) noting the enormous range of interactions that neither have been nor perhaps could or should or will be conducted in markets and hence (b) asking whether “organizational economy” might be at least as useful a metaphor as “market economy.”

See Robert Gibbons and John Roberts (2015) for the full text of this essay.