DP4205 Codes in Organizations

Author(s): Jacques Crémer, Luis Garicano, Andrea Prat
Publication Date: January 2004
Keyword(s): coding, communication cost, organization theory
JEL(s): D23
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4205

A code is a technical language that members of an organization learn in order to communicate among themselves and with members of other organizations. What are the features of an optimal code and how does it interact with the characteristics of the organization? This Paper develops a simple communication model and characterizes optimal codes. There exists a fundamental trade-off between choosing a specialized code that simplifies internal communication and a common code that facilitates external communication. We identify the drivers of this trade-off and we study the strategic aspects of code adoption. The results are used to interpret some existing organizational structures.