Nils Stieglitz

Search on Rugged Landscapes: An Experimental Study

This paper presents findings from a laboratory experiment on human decision making in a complex combinatorial task. We draw on the canonical NK model to depict tasks with varying complexity and find strong evidence for a behavioral model of adaptive search. Success narrows down search to the neighborhood of the status quo, whereas failure promotes gradually more exploratory search. Task complexity does not have a direct effect on behavior but systematically affects the feedback conditions that guide success-induced exploitation and failure-induced exploration. The analysis also shows that human participants were prone to overexploration, since they broke off the search for local improvements too early. We derive stylized decision rules that generate the search behavior observed in the experiment and discuss the implications of our findings for individual decision making and organizational search.

Opportunities and New Business Models: Transaction Cost and Property Rights Perspectives on Entrepreneurship

Entrepreneurs in a competitive economy face three fundamental problems. They need to search for and discover a business opportunity (Kirzner, 1973), evaluate it (Knight, 1921), and then seize the opportunity to reap entrepreneurial profits (Schumpeter, 1911) (Langlois, 2007). The problem that we address is how the ability to exploit business opportunities is influenced by entrepreneurial search and the economic organization of entrepreneurship (Arrow, 1962; Lippman & Rumelt, 2003; Aghion et al., 2005; Foss et al., 2007). In many cases, the discovery for a new business opportunity needs to be motivated by expected gains, since the search and evaluation of business opportunities is a costly, resource-consuming process (Denrell, Fang & Winter, 2003; Nickerson & Zenger, 2004; Foss & Klein, 2005; Teece, 2007; Foss & Foss, 2008). We show the critical role of expectations for understanding of the economic organization of entrepreneurship, and argue that transaction cost economics, with its insistence on bounded rationality, but far-sighted contracting offers useful insights and presents rich opportunities for further theoretical and empirical research (cf. also Furubotn, 2002).

Rewarding Value-Creating Ideas in Organizations: The Power of Low-Powered Incentives

This paper investigates the value of high-powered incentives for motivating search for novelty in business organizations. While organizational search critically depends on the individual efforts of employees, motivating search effort is challenged by problems of unobservable behavior and the misalignment of individual and organizational interests. Prior work on organizational design thus suggests that stronger incentives can overcome these problems and make organizations more innovative. To address this conjecture, we develop a computational model of organizational search that rests on two opposing effects of high-powered incentives: On the one hand, they promote higher effort by increasing the potential rewards from search; on the other hand, they increase the competition among ideas, as the ability of an organization to implement and remunerate good ideas is limited by its resource base. Our results indicate that low-powered incentives are effective in generating a sufficient stream of incremental innovations, but that they also result in a shortage of more radical innovations. Stronger incentives, in contrast, do not systematically foster radical innovations either, but instead create a costly oversupply of good ideas. Nonetheless, higher-powered incentives can still be effective in small firms and if strong persistence is required to develop a new idea. Based on the analysis of our model, we develop a set of propositions that appear to be consistent with extant evidence and point to new avenues for empirical research.Ideas from employees are a major source of value creation in firms, yet the merits of rewards for incentivizing the generation of ideas are highly contested. Using a computational model, we show that firms can improve performance by offering low-powered rewards for the selection and implementation of employee ideas. Low-powered incentives provide a sufficient stream of good ideas, but few exceptional ones. Higher-powered incentives, in contrast, do not systematically translate into exceptional ideas either, but generate an excessive number of good ideas. Performance-based rewards thus appear to be a blunt tool to harness the long tail of innovation. We develop propositions to guide empirical research and discuss their implications for strategy and organizational design.

Modelling Bounded Rationality in Organizations: Progress and Prospects

AbstractMuch of the formal modelling work in the organizational sciences relies on Herbert Simons conception of bounded rationality, and it stakes a claim to drawing on behaviorally plausible assu...

Vertical Scope, Turbulence, and the Benefits of Commitment and Flexibility

We address the contested state of theory and the mixed empirical evidence on the relationship between turbulence and vertical scope by studying how turbulence affects the benefits of commitment from integrated development of components and the benefits of flexibility from sourcing components externally. We show that increasing turbulence first increases but then decreases the relative value of vertical integration. Moderate turbulence reduces the value of flexibility by making supplier selection more difficult and increases the value of commitment by mitigating the status quo bias of integrated structures. Both effects improve the value of integration. Higher levels of turbulence undermine the adaptive benefits of commitment, but have a less adverse effect on flexibility, making nonintegration more attractive. We also show how complexity and uneven rates of turbulence moderate the nonmonotonic relationship between turbulence and integration. This paper was accepted by Jesper Sorensen, organizations.

Modern Resource-Based Theory(ies)

We survey the resource-based view in strategic management, focusing on its roots in economics. We organize our discussion in terms of the Gavetti and Levinthal distinction between a “high church�? and a “low church�? resource-based view, and argue that these hitherto rather separate streams are increasingly overlapping.

Business Model Innovation: The Role of Leadership

We draw on the complementarity literature in economics and management research to dimensionalize business models innovations. Specifically, such innovation can be dimensionalized in terms of the depth and the breadth of the changes to the company’s business model that they imply. In turn, different business model innovations are associated with different management challenges and require different leadership interventions to become successful.

Private virtues, public vices: social norms and corruption

Purpose - – Corruption has traditionally been associated with an absence of pro-social norms such as trust and altruism. This paper challenges this view by examining market corruption – one-shot exchange transactions between strangers in the shadow of the law. The paper aims to propose that in the absence of repeat interactions and legal remedies to prevent contractual violations, acts of market corruption will require strong norms of generalized trust and altruism. As such, pro-social norms facilitate, rather than mitigate, market corruption. Design/methodology/approach - – The paper utilizes meta-analysis to examine the relationship between pro-social behavior in economic experiments and prevailing corruption levels. Findings - – The results from meta-analyses of both trust- and dictator game experiments show positive, significant relationships between pro-social norms and prevailing corruption levels. Research limitations/implications - – The findings of the paper suggest the need for further research into the relationship between societal norms and different types of corruption. Practical implications - – Policymakers should be wary about attempting to combat corruption through bottom-up policies designed to strengthen pro-social norms. Such policies may be counter-productive in that they are likely to provide the breeding ground for more acts of market corruption. Originality/value - – Conventional wisdom suggests a negative association between pro-social norms and corruption levels. The paper proposes that the relationship is not that simple. Indeed, the meta-study findings suggest the reverse relationship in the case of petty (market) corruption.

Safeguarding common-pool resources in transition economies: Experimental evidence from Central Asia

Abstract Empirical evidence suggests that the propensity to cooperate in common pool resource dilemmas is higher for small, homogeneous groups with efficacious monitoring and sanctioning mechanisms. Given that transition from socialist to market economies is associated with larger, more heterogeneous groups with diluted opportunities for monitoring and sanctioning, individuals in later-stage transition economies may be expected to be less cooperative than their early-stage counterparts. However, evidence from experiments conducted with subjects in two economies at different stages of transition suggests that this may not be the case. These findings have implications for both theorists and practitioners alike.

Organizational Trade-Offs and the Dynamics of Adaptation in Permeable Structures

Organization design has a critical impact on how firms adapt to the business environment. In our case study, we show how organization design increases a firm’s ability to sense and seize business opportunities by making its organizational boundaries more permeable. Our findings reinforce and substantiate prior work on organization design and organizational adaptation. They also suggest how insights from organization design theory may help better understand the dynamic capabilities of firms. We find that disintegration and the creation of a permeable corporate structure require decision-makers to consider four organizational trade-offs: specialization, interdependencies, delegation, and incentives. We discuss how these organizational trade-offs provide a useful complementary perspective to the dynamic capability approach by highlighting the structural properties that shape organizational adaptation across time.