Economic theories of organization
Until the last ten years or so the relationship between economics and organizational analysis has been a quite distant one. Most economic theorists treated the organization as an entrepreneur in a field of entrepreneurs, and saw little need to inquire into the nature of the organization itself. On the other hand, organizational analysts paid relatively little attention to the interaction of organizations, even less to industry characteristics, and virtually none to the role of organizations in the economy as a whole. The organization responded to an environment, and its response was the focus of interest, not the environment. This has changed. Two closely related bodies of theory in economics agency theory and transaction-cost analysis have taken the internal operation of the firm as problematical and have investigated it. Agency theory has focused upon the problem the "principal" has in controlling the employee ("agent"), and transaction-cost analysis has focused upon the advantages of eliminating market contracts by incorporating suppliers and distributers into one's own firm the replacement of the market by a hierarchy. Organizational analysts, on the other hand, have begun to develop the notion of the environment in a variety of ways, some of which involve networks of organizations, others take account of industry characteristics (but as yet none has studied the dynamics of the economy as a whole). These ventures by the two disciplines, if I may speak of organizational analysis as a discipline, are, of course, to be welcomed for a variety of obvious reasons. The two disciplines have much to learn from each other. A less obvious reason for welcoming the developments will concern me in this article, and it is a somewhat perverse one. I find the formulations regarding human behavior and organizations by the economists to be not only wrong but dangerous. However, I find my own field of organizational analysis, and sociology in general, to be insufficiently developed to convincingly demonstrate the full measure of error. Therein resides the danger. But it is also an opportunity.