The purpose of this proposal is to provide an economic explanation for the emergence of, and the effects, corporate culture. In the context of this research, corporate culture is defined as the common language or code of conduct shared by employees of the firm, which are not shared by those outside the firm. Several approaches to analyzing corporate culture will be undertaken, which attempt to translate in economic terms the insights derived from other disciplines concerned with organizational behavior. One approach will focus on the cognitive aspects of corporate culture, the knowledge of codes, facts, and rules shared by the members of the organization. Another approach will emphasize the incentive aspects of corporate culture, which uses the framework of overlapping games to model the stability of organizational values while its members change. Finally, these models are applied to examining the costs and benefits of mergers, and to try and formalize the notion that ownership instability can limit the investment of employees in firm-specific knowledge and job skills. This project is important because it may provide a more fundememtal understanding of the factors that determine the effectiveness of organizations.
