Discuss and summarize Milgrom and Roberts (1988).

... Incentives in Organizations Russell Manley 14th January 2004 Question 1 Discuss and summarize Milgrom and Roberts (1988) The central question presented in Milgrom and Roberts is why an organization controlled by a central authority cannot replicate the performance of a decentralised organisation. Economists when writing about firms, historically, compare it with characteristics of markets. They argue that the success of markets in western society means that other economic organisations only occur due to failures in the market. They also state that given the apparent success of the market why not always rely on the market solution? There is however, considerable opposition to this view. Others believe that a market is essentially a primitive way of organising activity and that it worked in the middle ages but now with more complicated multi level/stage processes it is redundant and this has lead to large integrated firms. They argue that if the market works so well, why don't

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