Institutional and Organizational Economics

Why do some countries succeed while others struggle? Why are some firms profitable while rivals fail? Why do some marriages thrive and others end in divorce? These questions seem unrelated, but societies, companies, and marriages have one important thing in common: they involve more than one individual. They thus face the same fundamental challenges. How can people be made to help rather than hurt each other? How can they use sacrifice, cooperation, and coercion to promote the common good?

In this introductory text, Tore Ellingsen equips readers to answer essential questions around the success and failure of humans in groups, drawing on behavioral game theory, psychology, and sociology. He emphasizes how other-regarding preferences such as altruism and dutifulness matter for societies’ prosperity, and analyzes the role of culture in the form of shared values and understandings. One lesson is that cooperation is facilitated when people anticipate that they will hold common memories of past behavior, especially if agreements take precedence over leaders’ authority.

A groundbreaking text, Institutional and Organizational Economics is essential reading for students and scholars of economics, political science, sociology, and public administration.

Preface

1 The Organizational Challenge
2 Sacrifice
3 Selfishness, Rationality, and Utility
4 Situations, Games, and Cooperation
5 Shared Understandings and Values
6 Predicting Behavior in Games
7 A Model of Anarchy
8 Changing the Game
9 Coordination
10 Authority’s Limitations
11 Relationships
12 Third-party Punishment
13 Coercion: Costs and Benefits
14 Contracts and Governance
15 Limited Liability and Corporate Finance
16 Asymmetric Information
17 Application: The Oil-Pool Problem
18 Conclusion
19 More Food for Thought
20 Further Reading

Postface
Answers to Exercises
Notes
References
Index

“Institutional and Organizational Economics not only provides a superb development of the ideas of organizational economics, using the tools of basic game theory, but also offers fascinating connections to history, sociology, and literature. A tour de force.”
Oliver D. Hart, Harvard University

“This slim volume offers an amazing wealth of ideas about institutions and organizations. The exposition nicely combines historical and experimental evidence with clear and simple behavioral game theoretic explanations. A book to instruct and delight students and scholars alike.”
Avinash Dixit, Princeton University

Tore Ellingsen is the Ragnar Söderberg Chair in Economics at the Stockholm School of Economics.