<p>Your question is ultimately one about information flow in networks under conditions of imperfect and incomplete information. I like your distinction between "easy" and "hard" to calculate - it's a good rubric for problem classification.</p>

<p>I believe that work being done on complexity theory and information flows can help shed some light on how to think about the issue. Cesar Hidalgo is a leading thinker in this field and has assembled some very interesting tools in the context of global trade (the <a href="http://atlas.cid.harvard.edu/" rel="nofollow noreferrer">Atlas of Economic Complexity</a> being one). At the level of organizations, there would be an additional layer of complication arising from behavioural anomalies in decision-making that tend to bias human beings in favor of decisions cast in terms of simple data sets with clear narratives. This is the other side of the coin to Nassem Talib's "narrative fallacy", and of course, any study of behavioural biases must also include some time spent with the work of Kahneman and Tversky.</p>

CC BY-SA 4.0
2020-01-14T15:31:33.627Z
2020-01-14T15:31:33.627Z
heh
<p>These kind of problems are analyzed by economics of organization but to point toward a specific theory you need some specific source of the problem/reason for why the long run costs can’t be calculated.</p>

<p>Note it’s not necessary about ease of calculation, even if the productivity calculation would require some fancy mathematical model the firm could just hire some economist to do it. So there must be some reason why it can’t be done properly (uncertainty, information asymmetry etc). The only exemption would be where savings from hiring the economist are too low to do the calculation in the first place.</p>

<p>For example, if you assume principal is risk averse and simply the cost of printer is certain but cost of the forgone productivity is uncertain then you will get different way of analyzing the problem and use different theories/models than when for example the long run costs simply can’t be observed by principal due to some information asymmetry. For example, If a an agent request printer, the principal, who does not have full information on the task, must also take into the account that maybe agent requests the printer not only for productivity purposes but also for some personal benefit - many people use printers for personal tasks as well, and thus the full cost of not buying extra printer might not be possible to calculate.</p>

<p>Or there might be simply bad incentives throughout the organization where actually the person responsible for managing organization is the agent and principals are shareholders and then again due to information asymmetry you could have problem of focusing too much on only observable performance. </p>

<p>There could be some behavioral reasons for this as well like hyperbolic discounting.</p>

<p>So depending on the situation you would use asymmetric information theory, game theory, behavioral theory etc. If you are looking for solution to specific problem I would recommend putting economics of organizations + name of the problem into google scholar to get results relevant to specific problem).</p>

CC BY-SA 4.0
2019-12-15T13:21:35.983Z
2019-12-15T13:28:54.897Z
2019-12-15T13:28:54.897Z
1muflon1
<p>A lot of the organisations I have worked for have focused on that which is easy to calculate.</p>

<p>For example, direct cost savings are often easy to calculate, but analysing the wider implications of a cost cutting exercise are complicated.</p>

<p>A company might save money on their IT budget if they reduce the number of printers they use and this is relatively simple to calculate. However, the implications for productivity of having fewer printers is much more complicated and is often ignored (in my experience).</p>

<p>Are there any economic theories that investigate this effect?</p>

<cost><productivity>
Are there any economic theories around the concept of companies focusing on that which is easier to calcuate?
Barnaby Golden
# Are there any economic theories around the concept of companies focusing on that which is easier to calcuate?

(Asked by: username_0 on 2019-12-15)

A lot of the organisations I have worked for have focused on that which is easy to calculate.

For example, direct cost savings are often easy to calculate, but analysing the wider implications of a cost cutting exercise are complicated.

A company might save money on their IT budget if they reduce the number of printers they use and this is relatively simple to calculate. However, the implications for productivity of having fewer printers is much more complicated and is often ignored (in my experience).

Are there any economic theories that investigate this effect?

**Tags:** cost, productivity


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## 2 answers

### Answer by username_1 on 2020-01-14. Score: 1 | Accepted answer

Your question is ultimately one about information flow in networks under conditions of imperfect and incomplete information. I like your distinction between "easy" and "hard" to calculate - it's a good rubric for problem classification.

I believe that work being done on complexity theory and information flows can help shed some light on how to think about the issue. Cesar Hidalgo is a leading thinker in this field and has assembled some very interesting tools in the context of global trade (the [Atlas of Economic Complexity](http://atlas.cid.harvard.edu/) being one). At the level of organizations, there would be an additional layer of complication arising from behavioural anomalies in decision-making that tend to bias human beings in favor of decisions cast in terms of simple data sets with clear narratives. This is the other side of the coin to Nassem Talib's "narrative fallacy", and of course, any study of behavioural biases must also include some time spent with the work of Kahneman and Tversky.


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### Answer by username_2 on 2019-12-15. Score: 0

These kind of problems are analyzed by economics of organization but to point toward a specific theory you need some specific source of the problem/reason for why the long run costs can’t be calculated.

Note it’s not necessary about ease of calculation, even if the productivity calculation would require some fancy mathematical model the firm could just hire some economist to do it. So there must be some reason why it can’t be done properly (uncertainty, information asymmetry etc). The only exemption would be where savings from hiring the economist are too low to do the calculation in the first place.

For example, if you assume principal is risk averse and simply the cost of printer is certain but cost of the forgone productivity is uncertain then you will get different way of analyzing the problem and use different theories/models than when for example the long run costs simply can’t be observed by principal due to some information asymmetry. For example, If a an agent request printer, the principal, who does not have full information on the task, must also take into the account that maybe agent requests the printer not only for productivity purposes but also for some personal benefit - many people use printers for personal tasks as well, and thus the full cost of not buying extra printer might not be possible to calculate.

Or there might be simply bad incentives throughout the organization where actually the person responsible for managing organization is the agent and principals are shareholders and then again due to information asymmetry you could have problem of focusing too much on only observable performance.

There could be some behavioral reasons for this as well like hyperbolic discounting.

So depending on the situation you would use asymmetric information theory, game theory, behavioral theory etc. If you are looking for solution to specific problem I would recommend putting economics of organizations + name of the problem into google scholar to get results relevant to specific problem).


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