Culture, Competence, and the Corporation

Abstract:     
We provide an economic treatment of two central ideas from management studies: corporate culture, and corporate competence. We follow Weber and Camerer's (2003) experimental work, which identifies both the importance of cultural norms in communication, and the efficiency costs of moving to an unfamiliar culture. We argue that communication through tacit, cultural, channels can mitigate principal agent problems within organizations. The cultural displacement associated with job changes therefore has an agency cost. This reduces employee mobility and binds the employee's competences to the employer. Hence, the employer will finance training in general skills. If new information systems reduce the cultural specificity of communication channels then employees will become more mobile, and the burden of training will shift from employers to professional schools.

Number of Pages in PDF File: 29

Keywords: Corporate culture, training, information technology

JEL Classification: J24, L20, M14, M53, O33

working papers series