IDEAS home Printed from https://ideas.repec.org/a/kap/jmgtgv/v5y2001i3p401-425.html
   My bibliography  Save this article

Bounded Rationality in the Economics of Organization: Present Use and (Some) Future Possibilities

Author

Listed:
  • Nicolai Foss

Abstract

The way in which bounded rationality enterscontemporary organizational economicstheorizing is examined. It is argued that,as it is being used, bounded rationalityis not necessary for producing the results of organizationaleconomics. It is at best a rhetorical device,used for the purpose of loosely explainingincomplete contracts. However, it is possibleto incorporate much richer notions of boundedrationality, founded on research in cognitivepsychology, and to illuminate the study ofeconomic organization by means of such notions. A number of examples are provided. Copyright Kluwer Academic Publishers 2001

Suggested Citation

  • Nicolai Foss, 2001. "Bounded Rationality in the Economics of Organization: Present Use and (Some) Future Possibilities," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(3), pages 401-425, September.
    • Handle: RePEc:kap:jmgtgv:v:5:y:2001:i:3:p:401-425
    DOI: 10.1023/A:1014007330294
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1023/A:1014007330294
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1023/A:1014007330294?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
    3. Todd R. Zenger & William S. Hesterly, 1997. "The Disaggregation of Corporations: Selective Intervention, High-Powered Incentives, and Molecular Units," Organization Science, INFORMS, vol. 8(3), pages 209-222, June.
    4. Karen Hopper Wruck & Michael C. jensen, 1997. "Science, Specific Knowledge, And Total Quality Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(2), pages 8-23, June.
    5. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
    6. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    7. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    8. Loasby, Brian J, 1971. "Hypothesis and Paradigm in the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 81(324), pages 863-885, December.
    9. Kirsten Foss & Nicolai Foss, 2001. "Assets, Attributes and Ownership," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(1), pages 19-37.
    10. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-991, September.
    11. Richard A. Posner, 1993. "Ronald Coase and Methodology," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 195-210, Fall.
    12. Radner, Roy, 1996. "Bounded Rationality, Indeterminacy, and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 106(438), pages 1360-1373, September.
    13. Edward P. Lazear, 1991. "Labor Economics and the Psychology of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 89-110, Spring.
    14. Sunstein, Cass R, 2000. "Cognition and Cost-Benefit Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 29(2), pages 1059-1103, June.
    15. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September.
    16. William M. Dugger, 1996. "The Mechanisms of Governance," Journal of Economic Issues, Taylor & Francis Journals, vol. 30(4), pages 1212-1216, December.
    17. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    18. Nicolai J. Foss, 2001. "The Problem With Bounded Rationality On Behavioral Assumptions in the Theory of the Firm," DRUID Working Papers 01-15, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    19. Furubotn, Eirik G., 2001. "The new institutional economics and the theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 45(2), pages 133-153, June.
    20. Kreps, David M, 1996. "Markets and Hierarchies and (Mathematical) Economic Theory," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 5(2), pages 561-595.
    21. Gifford, Sharon, 1999. "Limited Attention and the Optimal Incompleteness of Contracts," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(2), pages 468-486, July.
    22. Schlicht, Ekkehart, 1990. "Rationality, Bounded or Not, and Institutional Analysis," Munich Reprints in Economics 3167, University of Munich, Department of Economics.
    23. Eirik Furubotn, 1999. "Economic Efficiency in a World of Frictions," European Journal of Law and Economics, Springer, vol. 8(3), pages 179-197, November.
    24. Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(1), pages 57-82.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lorenzo Esposito & Giuseppe Mastromatteo, 2024. "Behavioral economics and the nature of neoclassical paradigm," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 23(1), pages 45-78, December.
    2. Pelikan, Pavel, 2006. "Markets vs. Government when Rationality Is Unequally Bounded: Some Consequences of Cognitive Inequalities for Theory and Policy," Ratio Working Papers 85, The Ratio Institute, revised 03 Sep 2006.
    3. Szymon Kaczmarek, 2017. "Rethinking board diversity with the behavioural theory of corporate governance: opportunities and challenges for advances in theorising," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(4), pages 879-906, December.
    4. Foss Nicolai J., 2004. "Cognition and Motivation in the Theory of the Firm: Interaction or "Never the Twain Shall Meet"?," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 14(1), pages 1-24, March.
    5. Xiao, Shufeng & Yu, Tianjiao, 2024. "Underperformance duration and R&D internationalization: Institutional contingencies in an emerging economy," International Business Review, Elsevier, vol. 33(4).
    6. Libby Weber, 2017. "A Sociocognitive View of Repeated Interfirm Exchanges: How the Coevolution of Trust and Learning Impacts Subsequent Contracts," Organization Science, INFORMS, vol. 28(4), pages 744-759, August.
    7. Nicolai J. Foss, 2010. "Bounded Rationality and Organizational Economics," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 14, Edward Elgar Publishing.
    8. Morten Huse & Robert Hoskisson & Alessandro Zattoni & Riccardo Viganò, 2011. "New perspectives on board research: changing the research agenda," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(1), pages 5-28, February.
    9. Foss, Nicolai J., 2003. "Bounded rationality in the economics of organization: "Much cited and little used"," Journal of Economic Psychology, Elsevier, vol. 24(2), pages 245-264, April.
    10. Cristiana Parisi, 2013. "The impact of organisational alignment on the effectiveness of firms’ sustainability strategic performance measurement systems: an empirical analysis," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(1), pages 71-97, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nicolai J. Foss, 2010. "Bounded Rationality and Organizational Economics," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 14, Edward Elgar Publishing.
    2. Foss, Nicolai J., 2003. "Bounded rationality in the economics of organization: "Much cited and little used"," Journal of Economic Psychology, Elsevier, vol. 24(2), pages 245-264, April.
    3. Nicolai J. Foss, 1997. "Incomplete Contracts and Economic Organization Brian Loasby and the Theory of the Firm," DRUID Working Papers 97-11, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    4. Foss Nicolai J., 2004. "Cognition and Motivation in the Theory of the Firm: Interaction or "Never the Twain Shall Meet"?," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 14(1), pages 1-24, March.
    5. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    6. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    7. Robert Gibbons, 2010. "Inside Organizations: Pricing, Politics, and Path Dependence," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 337-365, September.
    8. Volker Mahnke, 2001. "The Process of Vertical Dis-Integration: An Evolutionary Perspective on Outsourcing," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(3), pages 353-379, September.
    9. M'Hand Farès & Stéphane Saussier, 2002. "Coûts de transaction et contrats incomplets," Revue Française d'Économie, Programme National Persée, vol. 16(3), pages 193-230.
    10. Dequech, David, 2006. "The new institutional economics and the theory of behaviour under uncertainty," Journal of Economic Behavior & Organization, Elsevier, vol. 59(1), pages 109-131, January.
    11. Schmidt, Klaus, 2017. "The 2016 Nobel Memorial Prize in Contract Theory," Rationality and Competition Discussion Paper Series 19, CRC TRR 190 Rationality and Competition.
    12. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    13. Nicolai J. Foss & Peter G. Klein, 2005. "The Theory of the Firm and Its Critics A Stocktaking and Assessment," DRUID Working Papers 05-03, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    14. Ilya Segal & Michael D.Whinston, 2012. "Property Rights [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    15. Nicolai J. Foss & Peter G. Klein, 2010. "Critiques of Transaction Cost Economics: An Overview," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 25, Edward Elgar Publishing.
    16. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    17. Peter G. Klein & Michael E. Sykuta, 2010. "Editors’ Introduction," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 1, Edward Elgar Publishing.
    18. Foss Kirsten & Foss Nicolai & Klein Peter G. & Klein Sandra K., 2002. "Heterogeneous Capital, Entrepreneurship, and Economic Organization," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 12(1), pages 1-20, March.
    19. Sharon Novak & Scott Stern, 2009. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," Management Science, INFORMS, vol. 55(2), pages 311-332, February.
    20. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jmgtgv:v:5:y:2001:i:3:p:401-425. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.