Organisational inertia in Japanese institutions

Abstract

A bureau of hierarchical authority is responsible for overseeing the banking industry. We show that career concerns of officials in the authority generate organisational inertia in the sense that, regardless of changes in the environment, a new junior official prefers to stick to the decision made by the former junior official, which may be suboptimal. This kind of inertia is acute in typical Japanese organisations, which have lifetime employment with internal promotion. We provide anecdotal evidence from the Ministry of Finance's policy making in the early 1990s, which seems to be well explained by our model. Show more