Assignment 4.

Drawing on the ideas of Hayek (which we met in assignment 1), Jensen and Meckling (1992) argue that we can understand the problem of organization as a problem of the "collocation" of knowledge and decision-making, that is, a problem of making sure that decision-makers have the knowledge they need to make decisions. There are only two ways of solving the collocation problem: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge" (Jensen and Meckling 1992, p. 253). Which of these will be appropriate can depend on a complex set of tradeoffs.

To explore those tradeoffs, consider the motion picture industry of the mid-twentieth century, which Ricard Gil and Pablo Spiller analyze in a recent NBER Working Paper. What is the tradeoff in the Gil-Spiller account? How does it connect with, and perhaps modify, the tradeoff in Jensen and Meckling?

Due: Week of March 31.