Managerial Dilemmas: The Political Economy of Hierarchy

Political Economy of Institutions and Decisions

by Gary J. Miller

In organization theory a schism has developed between the traditional organizational behavior literature, based in psychology, sociology and political science, and the more analytically rigorous field of organizational economics. The former stresses the importance of managerial leadership and cooperation among employees, while the latter focuses on the engineering of incentive systems that will induce efficiency, and profitability, by rewarding worker self-interest. In this innovative book, Gary Miller bridges the gap between these literatures. He demonstrates that it is impossible to design an incentive system based on self-interest that will effectively discipline all subordinates and superiors and obviate or overcome the roles of political conflict, collective action, and leadership in an organization. Applying game theory to the analysis of the roles of cooperation and political leadership in organizational hierarchies, he concludes that the organization whose managers can inspire cooperation and the transcendence of short-term interest in its employees enjoys a competitive advantage.

Genres: Economics, Business, Sociology, Theory

276 pages, Paperback

First published January 31, 1992

Reviews

[Caleb]

This is hands down one of the best books about organization theory around. Miller shows the dialectic of market failures, stemming especially from asymmetric information and externalities in team production that leads to the formation of organizations. But then he shows how these same problems make organizational governance ineffective. Miller adeptly weaves themes from organization economics and organization theory to get a grip on these problems and to think about how they may be overcome. His solution draws upon discussion of repeated games (especially Kreps but the same idea is later developed by Vernon Smith). This framing of the solution to governance failures, while insightful, is arguably less than adequate. The basic idea being that if there is a high enough prior probability that others will continue to cooperate with one in the future, given that one is cooperative, then it can be (economically) rational to cooperate. This is certainly true. But I don't think that it captures the full picture of motivation. Another way to read this is to say that virtue can be incentive compatible given conditions of joint production. So in this way, cooperation would express more of a categorical commitment and incentive compatibility would be more like a higher order (or virtual, in Pettit's sense) condition that does not figure into motivation but is necessary to sustain it. Regardless, Miller's book is well worth reading and rereading to appreciate both the inherent tension within contemporary organizations and a more realistic sense of the role of ethics in (some) organizations. It is worth noting that Cummins Engine, an example that Miller's discusses, was also discussed by Alasdair MacIntyre in his most recent book.

[Ethan]

Almost 5 stars - vastly better that most academic business books, with a helpfully broad aperture and sympathy to a variety of real world human dynamics in companies. The main gotcha is the lack of practical examples how firms can meaningfully implement the "solutions" suggested by the analysis - so-called "property rights", for example, or even the more general long-term commitments to employees that the author suggests management make.