The Limits of Organization

By: Kenneth J. Arrow

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Paperback | 1 February 1974 | Edition Number 1

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88 Pages

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21.33 x 12.95 x 0.5

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The tension between what we wish for and what we can get, between values and opportunities, exists even at the purely individual level. A hermit on a mountain may value warm clothing and yet be hard-pressed to make it from the leaves, bark, or skins he can find. But when many people are competing with each other for satisfaction of their wants, learning how to exploit what is available becomes more difficult. In this volume, Nobel Laureate Kenneth J. Arrow analyzes why - and how - human beings organize their common lives to overcome the basic economic problem: the allocation of scarce resources.

The price system is one means of organizing society to mediate competition, and Arrow analyzes its successes and failures. Alternative modes of achieving efficient allocation of resources are explored: government, the internal organization of the firm, and the 'invisible institutions' of ethical and moral principles. Professor Arrow shows how these systems create channels to make decisions, and discusses the costs of information acquisition and retrieval. He investigates the factors determining which potential decision variables are recognized as such. Finally, he argues that organizations must achieve some balance between the power of the decision makers and their obligation to those who carry out their decisions - between authority and responsibility.

Industry Reviews

A theoretical tract on organization, information and authority by the winner of the 1972 Nobel Prize in Economics. Arrow's argument, meticulous and abstract, utilizes recondite information theory. The limit to society's economic resources produces competition for materials, necessitating a mediator between competitors - the price system. But "a means of achieving the benefits of collective action in situations in which the price system falls" is called for - an organization. The organization must then deal with the uncertainty of the price system; it must process as much information at as little cost as possible. The value of an organization's pyramidic decision-making structure - of authority - lies in its ability to minimize the costs of information. But authority needs to be monitored in order to insure responsibility. Arrow's consideration of material needs and ethical beliefs - how they conflict and balance - is brief but astute, worthy of a Nobel Laureate. (Kirkus Reviews)

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