A Critique of Milgrom and Roberts' Treatment of Incentives vs. Bureaucratic Controls in the British North American Fur Trade

Abstract

In their 1992 textbook, Economics, Organization and Management, Milgrom and Roberts used 19th century fur trading companies as examples of effective (the incentive-based North West Company) and ineffective (the bureaucratic-based Hudson's Bay Company) organizations. Findings from detailed examinations of both companies' archives suggest that Milgrom and Roberts were not completely accurate in their depictions of the two companies' incentives and bureaucratic controls. In response to complexities of intercontinental trade, both companies used bureaucratic controls for coordination as well as profit sharing to motivate senior managers. More generally, the findings raise questions about Milgrom and Roberts' relatively negative conclusions concerning the effectiveness of bureaucratic controls.