The Ethereal Hand: Organizational Economics and Management Theory

Organizational economics, as a newer theory, has the potential to make a constructive contribution to management theory. Nevertheless, there are several inherent problems regarding its narrow model of human motivation and behavior, its negative moral characterization of managers, and its methodological individualist bias. One solution is to embrace the positive approach of the original economic formulations. The potentialities and pitfalls of organizational economics are illustrated by reference to matrix organization structures, vertical disintegration in insurance organizations, and corporate governance.