Friday, 15 June 2007

"Language and Theory of the Firm", Quarterly Journal of Economics 122(1): 373-407, February 2007

A paper by Andrea Prat (joint with Jacques Cremer and Luis Garicano) titled "Language and Theory of the Firm" has been published in the QJE 122(1): 373-407, February 2007. The authors characterize efficient technical languages and study their interaction with the scope and structure of organizations. Efficient languages use precise words for frequent events and vague words for unusual ones. A broader organizational scope allows for more synergies to be captured, but reduces within-unit efficiency, since it requires a more generic language. A manager working as specialized translator may also be used to achieve between-unit coordination while maintaining separate languages. Their theory reconciles two recent well-documented phenomena within organizations: the recent increase in information centralization and the reduction in hierarchical centralization.

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