Working Paper: CEPR ID: DP17817
Authors: Dana Foarta; Michael Ting
Abstract: This paper develops a dynamic theory of the interaction of organizational capacity and its institutional context. Higher capacity enables organizations to deliver projects efficiently, while institutional barriers allow opposing interests to reallocate project payoffs at the cost of delays. Projects that are small and distributionally unequal are vulnerable to revisions. Project designers avoid revisions by equalizing distributive benefits or inflating project scales to increase the cost of revisions. We show that ``matched" levels of capacity and institutional barriers minimize welfare. Organizational systems with high capacity and low institutional barriers, or low capacity and high institutional barriers, generate more efficient outcomes.
Keywords: organizational capacity; revisions; delays; institutions; transitions
JEL Codes: D73; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher organizational capacity (D29) | More efficient project delivery (O22) |
| Higher organizational capacity (D29) | Reduced costs (D61) |
| Higher organizational capacity (D29) | Reduced variability in delivery times (L87) |
| High capacity and low institutional barriers (O43) | More efficient outcomes (D61) |
| Low capacity and high institutional barriers (O17) | Increased delays and inefficiencies (L91) |
| Capacity and institutional barriers matched (O17) | Welfare minimized (D69) |
| Larger project scales (C55) | Deterring revisions (Y20) |
| Larger project scales (C55) | Increasing running costs (D24) |
| Increasing running costs (D24) | Enhancing expected payoffs (C73) |