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How German, Japanese, and U.S. Executives View Markets and Planning as Alternative Coordinating Mechanisms

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Abstract

  • Markets and central planning are alternative mechanisms for coordinating economic activity within economies and firms. A multi-level economics literature describes and contrasts the coordinating characteristics of markets and planning. While it assumes these characteristics reflect the perceptions and decisions of economic actors, this behavioural assumption has not been tested.

  • Based on the literature, the study develops hypotheses specifying how executives will perceive the coordinating characteristics of markets and planning. Using existing theory about individualism-collectivism, the study further hypotheses how the perceptions are likely to vary between individualistic and collectivistic cultures. When tested with a sample of top German, Japanese, and U.S. executives, the results, with two exceptions, support the hypotheses.

  • Going beyond the hypotheses, the study explores the preferences and underlying logic of executives across nationalities. German and U.S. executives share a similar cognitive structure. Japanese executives exhibit a different cognitive structure which reflects a more collectivistic culture. The study emphasizes the importance of testing the basic behavioural assumptions of economics and the need to consider culture a potential moderator of such assumptions.

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Acknowledgements

We wish to thank Professor Dr. Wolfgang Jagodzinski and Professor Kazufumi Manabe for their assistance during the early phase of the study. The financial support of the Deutsche Forschungsgemeinschaft (DFG) is gratefully acknowledged.

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Authors and Affiliations

  1. Graduate School of Business, Fordham University, New York, USA

    William G. Egelhoff

  2. University of Cologne, Koeln, Germany

    Erich Frese

Authors
  1. William G. Egelhoff
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  2. Erich Frese
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Correspondence to William G. Egelhoff.

Appendix: Measurement of variables

Appendix: Measurement of variables

Perceived Coordination Characteristics of Markets and Planning

These characteristics were measured with the following question:

As alternative coordinating mechanisms, markets and planning are each associated with specific pros and cons. Coordinating mechanisms are supposed to realize a number of goals, some of which are listed below. Given a situation with the same degree of complexity, please indicate whether a specific goal can be better achieved by markets or by planning.

V18_1 Avoid conflict

V18_2 Let every involved person be free to realize his/her own aims

V18_3 Motivate each involved person

V18_6 Increase cohesion among involved persons

V18_7 Achieve common goals of the involved persons

V18_9 Quickly adapt to external changes

V18_10 Make efficient use of scarce resources

V18_11 Provide incentives for hard work

(Answered on 3-point scales where “market is better” = 1, “no difference” = 0, “planning is better” = -1)

The above measures were used to operationalize the following perceived variables:

Motivation of individuals (MOT)—measured by a scale comprising V18_2, V18_3, V18_11 (a = 0.74)

Cohesion and cooperation (COH)—measured by a scale comprising V18_6, V18_7 (a = 0.71)

Conflict avoidance (CON)—measured by V18_1

Speed of adaptation (SPEED)—measured by V18_9

Efficient use of resources (EFF)—measured by V18_10

Executive’s Preference for Markets or Planning

Preference for markets or planning (PREF)—measured by a scale comprising V8, V9 (a = 0.78)

V8 Markets and central planning are two very different mechanisms for coordinating human actions or behavior, when there is division of labor. Which of these two mechanisms do you generally prefer? Answered on a 7-point scale which varied from 1 = “markets” to 7 = “central planning” (reverse coded).

V9 With regard to the economy as a whole, how would you define your thinking relative to the following two principles? Answered on a 7-point scale varying from “As much market as possible and as much planning as necessary” to “As much planning as possible and as much market as necessary” (reverse coded).

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Egelhoff, W., Frese, E. How German, Japanese, and U.S. Executives View Markets and Planning as Alternative Coordinating Mechanisms. Manag Int Rev 51, 511–532 (2011). https://doi.org/10.1007/s11575-011-0084-1

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  • DOI: https://doi.org/10.1007/s11575-011-0084-1

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