A conceptual framework for the design of organizational control mechanisms

Abstract

The problem of organization is the probtem of obtuning co(^>eration among a collection of individuals or units who share only partially congruent objectives. When a team of individuals collwtivety produces a angle output, there devekqn the i^oblem of how to distribute the rewards emanating from that on^nt in such a manner that each team member is equitably rewarded. If equitabte rewards are not fortficoming, nKmbm will, in futiue coop««tive ventures, adjust thdr effc«1s in such a manner that all will be somewhat worse off (cf. Simon [41], Marschak {26], Alchian and Demsetz [ID. It is the objective of this paper to describe three fundamentally different mechanisms through ^liiich organizations can sedc to cc^ with this problem of evahiatioa and control. The three will be referred to as markets, biueaucracMs, and dans. In a fundamental sense, maikets deal with the ccmlrol probtai through their ability to precisely measure and reward individual contributi