Organizational Structure and Choice of Technology: Analysis of Dual Relations

Abstract

We study relations between technological and organizational aspects of production and, particularly, a role of high-ability agents. We construct a theoretical model in which n physical resources and one informational resource (such as talented individuals, high-ability managers) are used in production process. We show that both the production function and its conjugate function, which describes spending of the informational resource, are generated by a choice of technology from a technological menu. These two dual choice problems correspond to decisions made by two interest groups in the organization. The group interested in increasing the output is referred as ‘operatives’, and the group interested in diminishing the expenditures of the costly informational resource – as ‘minimizers’. We show that if technological progress is not accompanied by organizational changes, it leads to an incompatibility: the choices of the interest groups diverge. If the final decision is made by ‘minimizers’, it leads to a bottleneck role of the ‘non-talented’ labor. The exit from this trap can consist in continuous change of the social technology when the economy moves along the growth path. Two examples are provided, in which the model is applied to theoretical analysis of the learning-by-doing process in industrial firms and to dynamics of structural changes in a university occupying teaching and research activities.