Ex post and ex ante coordination: Principles of coherence in organizations and markets.

Author:Cayla, David

Oliver Williamson (1991) argued that institutional economics was "vitiated" as it has attached too much importance to spontaneous mechanisms in comparison to intentional governance. As a result, it needs a "symmetrical treatment" of both of them. However, contrary to Williamson's recommendation, Hayekian approaches proliferated in the 1990s. A shared idea by this school of thought was that the increase of information issues in the firm management would necessary lead to withered authority relations and reduction of centralized hierarchy.

Unfortunately, Hayekian organizational analysis has left us with two questions unanswered. The first one stems from empirical research. As Richard Langlois (1995) noticed, most firms keep their specific organizational management and do not necessarily merge into the market's spontaneous order or even imitate its way of operating. This fact seems to be partly in contradiction to Friedrich Hayek's theory. Why do firms prefer a centralized coordination device? Why do they still plan and pay expensive wages to their managers if the best equilibrium should be obtained spontaneously by market relations?

The second question is related to the loss of specificity of coordination devices. While placing spontaneous devices at the center of the firm analysis, economists have excluded specificity from organizational studies (Favereau 1989; Langlois and Foss 1996; Cohendet and Llerena 1999). The modern economics of organization can be, therefore, considered as a "defensive" (Favereau 1989) or a "frictional" (Cohendet and Llerena 1999) theory that emphasizes the trade-off between organizations and markets. It focuses on the cost side of the equation, instead of considering the specific benefits per se that could appear in organizational structures (Langlois and Foss 1996).

The introduction of the notion of coherence in the economics of organization may help to answer these two questions. First, organizational coherence may be a specific advantage in certain kinds of transactions and may explain the reason why firms and intentional coordination devices still prevail. Second, the analysis of coherence may help to distinguish market and organization relationships.

The primary goals of this paper include developing and analyzing the notion of coherence. The second section will define the notion of coherence. The third will draw the distinction between ex post and ex ante coordination and investigate its consequences in the analysis of firms and markets.

A Definition of Organizational Coherence

In a paper published in Philosophy and Phenomenological Research, Laura Waddell Ekstrom (1993) proposed a definition of coherence based on Bonjour 1985. According to this definition, coherence among a system of items is a matter of how well the components "agree or dovetail with each other, so as to produce an organized, tightly structured system ... rather than either a helter-skelter collection or a set of conflicting systems" (Waddell Ekstrom 1993, 609). This definition underlines two conditions for a system to be considered coherent: first, the components of this system need to be "organized" and linked; second, theses links must not be of conflicting relations.

The first condition seems obvious if a structured whole is taken into consideration and not a simple cluster of components. As for the second condition, the absence of contradiction means either to ignore (but this may contradict the first condition) or to collaborate, or at least to go in the same direction. This implies that coherence should be an attribute of a system where its components proceed to fulfill non-self-contradictory objectives.

But this interpretation has left us with another difficult question--what objectives are we talking about? If we are talking about individual objectives, this would lead us to the proposition that the coherence of the whole would essentially rests on individual attributes, which seems too restrictive. For example, it can be shown that two individuals of conflicting goals can still develop coherent actions.

Let us take the example of a cleaning firm. Suppose that it has two cleaners (A and B) whose functions are complementary in terms of...

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