Research Summary

Coordination, Control, and the Management of Organizations

by Michael C. Jensen


Michael C. Jensen's research is aimed at obtaining a clearer understanding of how the 'organizational rules of the game' affect a manager's ability to accomplish his or her goals and how the rules can be structured to resolve problems and increase productivity. His analysis of centralization, decentralization, transfer pricing, and choices among profit, cost, and budget centers emphasizes the importance of people as self-interested individuals with conflicting goals and the exacerbation or amelioration of these conflicts by the organizational rules of the game. Jensen's approach presumes that individuals are sufficiently resourceful to determine the formal approach and informal rules by which rewards are distributed and will behave so as to enhance the rewards they receive. The approach also emphasizes the often non-rational or harmful effects of actions that individuals take in response to powerful personal defensive mechanisms. The research, which emphasizes the importance of information and its transfer cost to the solution of organizational problems, relies heavily on principles of economics, psychology, and neuroscience.