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Organizational Change and Reference-Dependent Preferences

Author

Listed:
  • Klaus M. Schmidt
  • Jonas von Wangenheim

Abstract

Reference-dependent preferences can explain several puzzling observations about organizational change. We introduce a dynamic model in which a loss-neutral firm bargains with loss-averse workers over organizational change and wages. We show that change is often stagnant or slow for long periods followed by a sudden boost in productivity during a crisis. Moreover, it accounts for the fact that different firms in the same industry often have significant productivity differences. The model also demonstrates the importance of expectation management even if all parties have rational expectations. Social preferences explain why it may be optimal to divide a firm into separate entities.

Suggested Citation

  • Klaus M. Schmidt & Jonas von Wangenheim, 2024. "Organizational Change and Reference-Dependent Preferences," CRC TR 224 Discussion Paper Series crctr224_2024_599, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_599
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp599
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    More about this item

    Keywords

    Organizational Change; Productivity; Reference Points; Loss Aversion; Social Preferences;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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