Despite ongoing restructuring of the Chinese economy, barriers to labor mobility and attendantstratification of China’s labor markets remain significant. Those barriers serve to reduce the efficiency of labor market allocations and accordingly inhibit wage equilibration and productivity growth. Constraints on labor mobility further hamper growth in private employment as well as government efforts torationalize economic activity through the closure of insolvent state-owned enterprises. In this study, we apply unique matched worker-firm data from a recent survey of urban workers to examine existent stratifications of labor markets and transitions to private employment in urban China. In so doing, the analysis assesses wage determination, worker preferences for state versus private employment, and job turnover. As expected, research findings indicate higher returns to schooling in non-state sectors, in cities with more rapid private sector growth, in more profitable enterprises, and for less risk-averse workers. Results further show that preferences for state-sector employment decrease with schooling but increase with worker risk aversion. Workers’ job-change prospects decrease with age, risk aversion, andrestrictiveness of job preferences. Overall, results point to the importance of labor market transition policies and indicate the sizable efficiency and productivity gains that might arise from enhanced labor mobility.
{"title":"Transitions to Private Employment: Earnings Determination, Worker Employment Preferences, and Job Turnover in Urban China","authors":"Yuming Fu, S. Gabriel","doi":"10.2139/ssrn.286812","DOIUrl":"https://doi.org/10.2139/ssrn.286812","url":null,"abstract":"Despite ongoing restructuring of the Chinese economy, barriers to labor mobility and attendantstratification of China’s labor markets remain significant. Those barriers serve to reduce the efficiency of labor market allocations and accordingly inhibit wage equilibration and productivity growth. Constraints on labor mobility further hamper growth in private employment as well as government efforts torationalize economic activity through the closure of insolvent state-owned enterprises. In this study, we apply unique matched worker-firm data from a recent survey of urban workers to examine existent stratifications of labor markets and transitions to private employment in urban China. In so doing, the analysis assesses wage determination, worker preferences for state versus private employment, and job turnover. As expected, research findings indicate higher returns to schooling in non-state sectors, in cities with more rapid private sector growth, in more profitable enterprises, and for less risk-averse workers. Results further show that preferences for state-sector employment decrease with schooling but increase with worker risk aversion. Workers’ job-change prospects decrease with age, risk aversion, andrestrictiveness of job preferences. Overall, results point to the importance of labor market transition policies and indicate the sizable efficiency and productivity gains that might arise from enhanced labor mobility.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114941954","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Does the impact of environmental regulation differ by plant vintage and technology? We answer this question using annual Census Bureau information on 116 pulp and paper mills' vintage, technology, productivity, and pollution abatement operating costs for 1979-1990. We find a significant negative relationship between pollution abatement costs and productivity levels. This is due almost entirely to integrated mills (those incorporating a pulping process), where a one standard deviation increase in abatement costs is predicted to reduce productivity by 5.4 percent. Older plants appear to have lower productivity but are less sensitive to abatement costs, perhaps due to 'grandfathering' of regulations. Mills which undergo renovations are also less sensitive to abatement costs, although these vintage and renovation results are not generally significant. We find similar results using a log-linear version of a three input Cobb-Douglas production function in which we include our technology, vintage, and renovation variables. Sample calculations of the impact of pollution abatement on productivity show the importance of allowing for differences based on plant technology. In a model incorporating technology interactions we estimate that total pollution abatement costs reduce productivity levels by an average of 4.7 percent across all the plants. The comparable estimate without technology interactions is 3.3 percent, approximately 30% lower.
{"title":"Plant Vintage, Technology, and Environmental Regulation","authors":"W. Gray, Ronald J. Shadbegian","doi":"10.3386/W8480","DOIUrl":"https://doi.org/10.3386/W8480","url":null,"abstract":"Does the impact of environmental regulation differ by plant vintage and technology? We answer this question using annual Census Bureau information on 116 pulp and paper mills' vintage, technology, productivity, and pollution abatement operating costs for 1979-1990. We find a significant negative relationship between pollution abatement costs and productivity levels. This is due almost entirely to integrated mills (those incorporating a pulping process), where a one standard deviation increase in abatement costs is predicted to reduce productivity by 5.4 percent. Older plants appear to have lower productivity but are less sensitive to abatement costs, perhaps due to 'grandfathering' of regulations. Mills which undergo renovations are also less sensitive to abatement costs, although these vintage and renovation results are not generally significant. We find similar results using a log-linear version of a three input Cobb-Douglas production function in which we include our technology, vintage, and renovation variables. Sample calculations of the impact of pollution abatement on productivity show the importance of allowing for differences based on plant technology. In a model incorporating technology interactions we estimate that total pollution abatement costs reduce productivity levels by an average of 4.7 percent across all the plants. The comparable estimate without technology interactions is 3.3 percent, approximately 30% lower.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126723821","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2001-06-01DOI: 10.1002/9780470756461.CH11
J. Markusen, K. Maskus
Beginning in the early 1980s, theoretical analyses have incorporated the multinational firm into the microeconomic, general-equilibrium theory of international trade. Recent advances indicate how vertical and horizontal multinationals arise endogenously as determined by country characteristics, including relative size and relative endowment differences, and trade and investment costs. Results also characterize the relationship between foreign affiliate production and international trade in goods and services. In this paper, we survey some of this recent work, and note the testable predictions generated in the theory. In the second part of the paper, we examine empirical results that relate foreign affiliate production to country characteristics and trade/investment cost factors. We also review findings from analyses of the pattern of substitutability or complementarity between trade and foreign production.
{"title":"General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence","authors":"J. Markusen, K. Maskus","doi":"10.1002/9780470756461.CH11","DOIUrl":"https://doi.org/10.1002/9780470756461.CH11","url":null,"abstract":"Beginning in the early 1980s, theoretical analyses have incorporated the multinational firm into the microeconomic, general-equilibrium theory of international trade. Recent advances indicate how vertical and horizontal multinationals arise endogenously as determined by country characteristics, including relative size and relative endowment differences, and trade and investment costs. Results also characterize the relationship between foreign affiliate production and international trade in goods and services. In this paper, we survey some of this recent work, and note the testable predictions generated in the theory. In the second part of the paper, we examine empirical results that relate foreign affiliate production to country characteristics and trade/investment cost factors. We also review findings from analyses of the pattern of substitutability or complementarity between trade and foreign production.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114138112","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In some industries, firms are able to choose who regulates them. There is a long debate over whether regulatory competition is beneficial or whether it leads to a race for the bottom. We introduce another possible issue with regulation. Regulators may take actions intended to minimize the effort they spend on work. Using banking as an example, we test this quiet life hypothesis against other explanations of regulatory behavior. Banks are able to switch among three options for a primary federal regulator: the OCC, the Federal Reserve, and the FDIC. We examine why they switch and what the results of switches are. We find support for the hypothesis that competition among regulators has beneficial aspects. Regulators seem to specialize, offering banks that are changing strategy the ability to improve performance by switching regulators. There is also evidence that the ability to switch regulators allows banks to get away from an examiner that desires a quiet life. I would like to thank Susan Monaco, Terry Nixon, Greg Udell, and participants in workshops at Indiana University and the Federal Reserve Bank of Chicago for comments on the paper. Some of this work was completed while the author was visiting the Federal Reserve Bank of Chicago. The opinions expressed in this paper are those of the author, and do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.
{"title":"Do Regulators Search for the Quiet Life? The Relationship Between Regulators and the Regulated in Banking","authors":"R. Rosen","doi":"10.2139/ssrn.257131","DOIUrl":"https://doi.org/10.2139/ssrn.257131","url":null,"abstract":"In some industries, firms are able to choose who regulates them. There is a long debate over whether regulatory competition is beneficial or whether it leads to a race for the bottom. We introduce another possible issue with regulation. Regulators may take actions intended to minimize the effort they spend on work. Using banking as an example, we test this quiet life hypothesis against other explanations of regulatory behavior. Banks are able to switch among three options for a primary federal regulator: the OCC, the Federal Reserve, and the FDIC. We examine why they switch and what the results of switches are. We find support for the hypothesis that competition among regulators has beneficial aspects. Regulators seem to specialize, offering banks that are changing strategy the ability to improve performance by switching regulators. There is also evidence that the ability to switch regulators allows banks to get away from an examiner that desires a quiet life. I would like to thank Susan Monaco, Terry Nixon, Greg Udell, and participants in workshops at Indiana University and the Federal Reserve Bank of Chicago for comments on the paper. Some of this work was completed while the author was visiting the Federal Reserve Bank of Chicago. The opinions expressed in this paper are those of the author, and do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"162 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114178778","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
With the movement toward globalization, the question of how efficiencies can be achieved through cross-border integration is becoming increasingly important. This paper argues that one avenue for cross-border efficiency is through the greater utilization of firms with under-used distribution channels by other firms with over-used distribution channels. The analysis examines the contemporary European commercial banking industry, and develops an empirical model concerning the degree to which banks' branch networks are over-utilized or under-utilized and what the efficiency implications would be of further organic growth. I find evidence indicating that larger banks are more likely to have heavily utilized branch networks than smaller banks and to exhibit fewer cost efficiencies from building more branches. I find this result both across countries, as well as within countries. The within-country effect suggests that the result is size-driven and can be independent of competitive conditions?larger banks handle more transactions within their existing networks and have higher physical capital costs in opening up new branches. The variance and magnitude of the findings within each country relative to the findings in other countries suggest the impact of factors related to different competitive environments. The findings suggest that cross-border consolidation between larger banks with over-utilized branch networks and smaller banks with under-utilized branch networks could yield cost efficiencies. The larger banks could market a greater diversity of products to an international clientele using the under-utilized distribution channels of the smaller banks.
{"title":"Empirical Evidence on Managing Networks: The Case of European Banking","authors":"Nayantara D. Hensel","doi":"10.2139/ssrn.269889","DOIUrl":"https://doi.org/10.2139/ssrn.269889","url":null,"abstract":"With the movement toward globalization, the question of how efficiencies can be achieved through cross-border integration is becoming increasingly important. This paper argues that one avenue for cross-border efficiency is through the greater utilization of firms with under-used distribution channels by other firms with over-used distribution channels. The analysis examines the contemporary European commercial banking industry, and develops an empirical model concerning the degree to which banks' branch networks are over-utilized or under-utilized and what the efficiency implications would be of further organic growth. I find evidence indicating that larger banks are more likely to have heavily utilized branch networks than smaller banks and to exhibit fewer cost efficiencies from building more branches. I find this result both across countries, as well as within countries. The within-country effect suggests that the result is size-driven and can be independent of competitive conditions?larger banks handle more transactions within their existing networks and have higher physical capital costs in opening up new branches. The variance and magnitude of the findings within each country relative to the findings in other countries suggest the impact of factors related to different competitive environments. The findings suggest that cross-border consolidation between larger banks with over-utilized branch networks and smaller banks with under-utilized branch networks could yield cost efficiencies. The larger banks could market a greater diversity of products to an international clientele using the under-utilized distribution channels of the smaller banks.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"173 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124241572","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes executive turnover and firm valuation in Italy, a country that features all the characteristics of the most common governance structure around the world, as described by La Porta, et al. (1999): low legal protection for investors, firms with large controlling shareholders and pyramidal groups. The main findings are that turnover is significantly lower and unaffected by performance when the controlling shareholder of the firm is also a top executive in the firm, while it is more sensitive to performance when control is, to some extent, contestable and when the controlling shareholder owns a larger fraction of the firm's cash-flow rights. The results on valuation are the mirror image of those on turnover: the firm's Q is lower for companies with the controlling shareholder as a top executive, larger when a voting syndicate controls the firm, and increases with the fraction of cash-flow rights owned by the controlling shareholder.
{"title":"Governance with Poor Investor Protection: Evidence from Top Executive Turnover","authors":"P. Volpin","doi":"10.2139/ssrn.262789","DOIUrl":"https://doi.org/10.2139/ssrn.262789","url":null,"abstract":"This paper analyzes executive turnover and firm valuation in Italy, a country that features all the characteristics of the most common governance structure around the world, as described by La Porta, et al. (1999): low legal protection for investors, firms with large controlling shareholders and pyramidal groups. The main findings are that turnover is significantly lower and unaffected by performance when the controlling shareholder of the firm is also a top executive in the firm, while it is more sensitive to performance when control is, to some extent, contestable and when the controlling shareholder owns a larger fraction of the firm's cash-flow rights. The results on valuation are the mirror image of those on turnover: the firm's Q is lower for companies with the controlling shareholder as a top executive, larger when a voting syndicate controls the firm, and increases with the fraction of cash-flow rights owned by the controlling shareholder.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2001-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134192951","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes the problem of price discrimination in a market where consumers have heterogeneous preferences both over a horizontal parameter (brand) and a vertical one (quality). Discriminatory contracts are characterized for different market structures. It is shown that price dispersion, i.e., the observed range of prices for each class of customers, increases almost everywhere as competition is introduced in the market. The findings are discussed with reference to the U.K. mobile telecommunications market.
{"title":"Price Discrimination and Price Dispersion in a Duopoly","authors":"T. Valletti","doi":"10.2139/ssrn.122035","DOIUrl":"https://doi.org/10.2139/ssrn.122035","url":null,"abstract":"This paper analyzes the problem of price discrimination in a market where consumers have heterogeneous preferences both over a horizontal parameter (brand) and a vertical one (quality). Discriminatory contracts are characterized for different market structures. It is shown that price dispersion, i.e., the observed range of prices for each class of customers, increases almost everywhere as competition is introduced in the market. The findings are discussed with reference to the U.K. mobile telecommunications market.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133514159","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In a housing insurance market buildings have different damage probabilities. High-risk houses need investment, low-risk houses don't. Insurers use imperfect tests to assess risks. The market is a natural monopoly: with more than one active insurer, high-risk house owners continue to apply to insurers until they are eventually assigned to the low-risk class. The natural monopoly need not be sustainable. In equilibrium the incumbent accommodates entry even when the natural monopoly is sustainable. We explain recent observations from Germany and Switzerland where damage rates and prices went up drastically after the transition from state monopolies to competitive environments. Copyright 2001 by Blackwell Publishing Ltd
{"title":"Imperfect Tests and Natural Insurance Monopolies","authors":"Winand Emons","doi":"10.2139/ssrn.37746","DOIUrl":"https://doi.org/10.2139/ssrn.37746","url":null,"abstract":"In a housing insurance market buildings have different damage probabilities. High-risk houses need investment, low-risk houses don't. Insurers use imperfect tests to assess risks. The market is a natural monopoly: with more than one active insurer, high-risk house owners continue to apply to insurers until they are eventually assigned to the low-risk class. The natural monopoly need not be sustainable. In equilibrium the incumbent accommodates entry even when the natural monopoly is sustainable. We explain recent observations from Germany and Switzerland where damage rates and prices went up drastically after the transition from state monopolies to competitive environments. Copyright 2001 by Blackwell Publishing Ltd","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116770251","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze credit applications, loan denials, and interest rates paid by small businesses across owner gender, race, and ethnicity. In addition, we examine data from owners who said they did not apply for credit because they believed that their applications would have been turned down. After controlling for a rich set of explanatory variables, including personal and business credit histories, substantial differences in denial rates between firms owned by African Americans and white males remain. Moreover, consistent with Becker's classic theories (1957), we find evidence that increases in competition in the firm's local banking market reduces these differences.
{"title":"Competition, Small Business Financing, and Discrimination: Evidence from a New Survey","authors":"Ken S. Cavalluzzo, John D. Wolken, L. Cavalluzzo","doi":"10.2139/ssrn.171733","DOIUrl":"https://doi.org/10.2139/ssrn.171733","url":null,"abstract":"We analyze credit applications, loan denials, and interest rates paid by small businesses across owner gender, race, and ethnicity. In addition, we examine data from owners who said they did not apply for credit because they believed that their applications would have been turned down. After controlling for a rich set of explanatory variables, including personal and business credit histories, substantial differences in denial rates between firms owned by African Americans and white males remain. Moreover, consistent with Becker's classic theories (1957), we find evidence that increases in competition in the firm's local banking market reduces these differences.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121729367","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
S. Dolan, Salvador García, Samantha Diegoli, A. Auerbach
Business organisations are excellent representations of what in physics and mathematics are designated "chaotic" systems. Because a culture of innovation will be vital for organisational survival in the 21st century, the present paper proposes that viewing organisations in terms of "complexity theory" may assist leaders in fine-tuning managerial philosophies that provide orderly management emphasizing stability within a culture of organised chaos, for it is on the "boundary of chaos" that the greatest creativity occurs. It is argued that 21st century companies, as chaotic social systems, will no longer be effectively managed by rigid objectives (MBO) nor by instructions (MBI). Their capacity for self-organisation will be derived essentially from how their members accept a shared set of values or principles for action (MBV). Complexity theory deals with systems that show complex structures in time or space, often hiding simple deterministic rules. This theory holds that once these rules are found, it is possible to make effective predictions and even to control the apparent complexity. The state of chaos that self-organises, thanks to the appearance of the "strange attractor", is the ideal basis for creativity and innovation in the company. In this self-organised state of chaos, members are not confined to narrow roles, and gradually develop their capacity for differentiation and relationships, growing continuously toward their maximum potential contribution to the efficiency of the organisation. In this way, values act as organisers or "attractors" of disorder, which in the theory of chaos are equations represented by unusually regular geometric configurations that predict the long-term behaviour of complex systems. In business organisations (as in all kinds of social systems) the starting principles end up as the final principles in the long term. An attractor is a model representation of the behavioral results of a system. The attractor is not a force of attraction or a goal-oriented presence in the system; it simply depicts where the system is headed based on its rules of motion. Thus, in a culture that cultivates or shares values of autonomy, responsibility, independence, innovation, creativity, and proaction, the risk of short-term chaos is mitigated by an overall long-term sense of direction. A more suitable approach to manage the internal and external complexities that organisations are currently confronting is to alter their dominant culture under the principles of MBV.
{"title":"Organisational Values as 'Attractors of Chaos': An Emerging Cultural Change to Manage Organisational Complexity","authors":"S. Dolan, Salvador García, Samantha Diegoli, A. Auerbach","doi":"10.2139/ssrn.237630","DOIUrl":"https://doi.org/10.2139/ssrn.237630","url":null,"abstract":"Business organisations are excellent representations of what in physics and mathematics are designated \"chaotic\" systems. Because a culture of innovation will be vital for organisational survival in the 21st century, the present paper proposes that viewing organisations in terms of \"complexity theory\" may assist leaders in fine-tuning managerial philosophies that provide orderly management emphasizing stability within a culture of organised chaos, for it is on the \"boundary of chaos\" that the greatest creativity occurs. It is argued that 21st century companies, as chaotic social systems, will no longer be effectively managed by rigid objectives (MBO) nor by instructions (MBI). Their capacity for self-organisation will be derived essentially from how their members accept a shared set of values or principles for action (MBV). Complexity theory deals with systems that show complex structures in time or space, often hiding simple deterministic rules. This theory holds that once these rules are found, it is possible to make effective predictions and even to control the apparent complexity. The state of chaos that self-organises, thanks to the appearance of the \"strange attractor\", is the ideal basis for creativity and innovation in the company. In this self-organised state of chaos, members are not confined to narrow roles, and gradually develop their capacity for differentiation and relationships, growing continuously toward their maximum potential contribution to the efficiency of the organisation. In this way, values act as organisers or \"attractors\" of disorder, which in the theory of chaos are equations represented by unusually regular geometric configurations that predict the long-term behaviour of complex systems. In business organisations (as in all kinds of social systems) the starting principles end up as the final principles in the long term. An attractor is a model representation of the behavioral results of a system. The attractor is not a force of attraction or a goal-oriented presence in the system; it simply depicts where the system is headed based on its rules of motion. Thus, in a culture that cultivates or shares values of autonomy, responsibility, independence, innovation, creativity, and proaction, the risk of short-term chaos is mitigated by an overall long-term sense of direction. A more suitable approach to manage the internal and external complexities that organisations are currently confronting is to alter their dominant culture under the principles of MBV.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130762295","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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