Cooperation in Hierarchical Organizations: An Incentive Perspective

"Failures of cooperation" is one of the six recurring patterns of weakness in productivity performance in the United States pointed out by the MIT Commission on Industrial Productivity (Dertouzos et al.). The commission discusses a lack of cooperation at various levels-within firms, between labor and management, in vertical relationships such as producer-consumer and producer-supplier linkages, and among firis in the same industry segment. For example, the commission ascribes the failure of cooperation within the firm to excessive specialization, multiple layers of bureaucracy, and little lateral flow of information. These features are the major ingredients of what was once considered (and has still been considered by many) as the most effective organizational structure: hierarchy based on extensive division of labor. In this structure the production process is divided into many distinct tasks, each of which is made the sole responsibility of a specialist who is only adept at the performance of that task, and coordination among tasks is a specialized job of upper management. The deviation from such an organizational structure seems evident, however. In the field of human resource man-