Corporate Culture and Shared Knowledge*

Abstract

This paper defines the concept of ‘cultures’ of organization in economic terms, analyzes it with economic tools and studies some of its economic consequences. The concept of corporate culture is attractive because it may provide some language for speaking about the ‘personalities’ of organizations. Actual organizations seem to bave personalities which are fairly stable over time and independent of their actual members. This paper focuses on ‘cognitive’ aspects of corporate culture in terms of the question of why corporate culture is a factor of efficiency in the internal treatment of information within organizations. The framework used is ‘team-theory’ in a pre-Groves (1973) sense. It is assumed that human beings are perfectly honest and trustworthy but have limited capacity for processing, receiving and transmitting information. In turn, culture is defined as the stock of knowledge shared by the members of the organization. The acquisition of this knowledge is an investment. The paper is divided into four sections. First, it studies the benefits of this investment. Second, the paper offers a formal discussion of the concept of culture and some examples to guide the formal discussion. Third, it presents a formal model. Finally, it discusses the stability of corporate culture and applies the analysis of the second section to the ‘limits on the size of firms’ problem.