Team Organization, Coordination, and Firm Structures
Team Organization and Coordination
Team Organization: Contexts characterized by a collective action of joint production with team production technologies and opportunity costs for the resources used in production.
Coordination Problem: Characterized by a situation where one decision maker, A, realizes that the best decision to reach her goals depends on the decision of other agents, for example B. In most cases, B will be in a similar situation, so the starting point of a coordination problem is the state of mutual interdependencies.
Solutions to Coordination Problems
Centralization: Coordinating the interdependent decisions of several agents involved in a collective action through a centralization strategy means having an information structure and designing communication flows through the information channels so that each decision is made in a fully informed manner.
Committee: Consists of the interdependent parties getting together to exchange information so that all the committee members participate in the information exchange and in the consensus of a solution-decision on what each should do in the implementation of the agreed solution. Meeting face to face or in a virtual meeting. However, the working of the committee consumes time and effort of all the members involved in the coordination meetings, as well as transportation time in some cases.
Full Network: Having a network of communication lines connecting all interdependent parties and sending messages through the network channels until each person connected has at her disposal all the information on her own and on the other interdependent agents, needed to make fully informed and fully coordinated decisions. N(N-1)/2.
Creation of a Coordination Center: Occupied by individuals that perform the coordination tasks, involves specialization of the collaborating agents into those whose contribution to the collective action is in the form of direct work, and those whose contribution is in performing the coordination function.
Decentralization and Interdependencies
Decentralization: Consists of letting all collaborating parties make decisions with the partial information from their local working environment.
Types of Interdependencies:
- Sharing Resources: Occurs because units A and B both use one or more resources that are available in limited supply, so the more one unit consumes of the resource, the less is left for the other.
- Sequential: Occurs when one unit, A, produces an output that is used as input by another unit, B, in the organization.
- Reciprocal: Occurs when the flow of activities goes from A to B and also from B to A.
Firm Structures
Modern Firm: Characterized by the introduction of information technologies incorporated into the manufacturing process.
Traditional Firm: Characterized by defining a narrow job position with only one or very few tasks and reducing to the minimum the autonomy of the person of the job; the person stayed in the job permanently.
Coalitions and Self-Managed Organizations
Coalition: Shares most of the features of the team organization, but there is an important difference: each party has its own utility function in which only matters the own pay offs obtained from the collaboration.
Self-Managed Organization:
- The collaborating parties agree on a rule to share the total output produced that is compatible with the financial sufficiency constraint.
- Once there is agreement on the sharing rule, each resource owner decides the contribution of resource that voluntarily will make to the collective action.
- Total output produced is observed and the sharing rule is applied so the total output is allocated among the collaborating parties.
Free Riding: Decision of agent i in reducing the contribution of resources made to the collective action.