1999, SSRN Electronic Journal
notes, at points, the discussion in Arrow's (1974) book on organizations contains ideas that clearly foreshadow what would later be called corporate culture. Hodgson (1996) suggests that the "old" (pre-Coase, 1937, and Williamson, 1975) institutional tradition in economics (e.g., the work of Thorstein Veblen) could also be seen as sympathetic to current notions of corporate culture. corporate culture by shedding light on specific facets of corporate culture that are less amenable to analysis by other social sciences. This chapter begins by reviewing, synthesizing, and commenting on earlier work by economists on corporate culture, with particular attention spent on Kreps's famous article. The second half of the chapter is spent discussing how certain insights from other economic analyses of organizations can complement our understanding of corporate culture. 2 Kreps offers two reasons for economists to consider corporate culture. First, understanding culture-and organizations more generally-is necessary for understanding how firms implement strategy: The actual purpose of the firm qua organization is not considered [by textbook economics]. This is rather strange, for if one has an economic mind-set, one must believe that the firm itself performs some economic (efficiency-promoting) function. From there it is a short step to consider as part, perhaps the largest part, of successful strategy those actions designed to increase the firm's organizational efficiency. (From the Introduction.) Kreps's second reason is his belief that economics have now developed the theoretical tools to study culture and he wants "to present the outlines of the theory that is developing," while encouraging his readers to develop it further. Kreps's analysis of corporate culture is built from the following ingredients: 2 The reader interested in the more general topic of the economics of organization (with, however, little to no discussion of corporate culture) would do well to consider the surveys by Gibbons (1998, 1999) and MacLeod (1995). MacLeod's survey is the most technical of the three. 3 Following the convention in economics, a variable is verifiable if its value can be learned by a judge or other outside party called upon to adjudicate a dispute.