Inside the Firm: Inefficiencies of Hierarchy - Tapa dura

Why are most businesses less efficient that they could be? Why do two identical Ford plants in England and Germany, manufacturing identical cars, have vastly different rates of production? Harvey Leibenstein explores such questions in depth, using ideas and evidence from economics, game theory, psychology, and other disciplines. He observes that employees usually perform best when they work under a moderate amount of pressure not too little and not too much. But this sort of balanced situation is rare, so most workers in low-pressure situations may shirk their tasks, while those in a stressful environment may cave in. To avoid this state of affairs, Leibenstein argues, workers tacitly adopt conventions about proper degrees of effort. These standards, which frequently defy rational considerations, are largely governed by the history of the firm, the degree of hierarchy, and the nature of the competitive relationships within the firm. Leibenstein analyzes the structure and functioning of companies with multiple levels of hierarchy, pinpointing sources of inefficiency. He also examines the question of entrepreneurship.