European Economic Review 43 (1999) 1021}1037 On the strength of corporate cultures

We model corporate culture(s) as production technologies for which employees have to undertake culture-speci"c investments that improve their e!ectiveness. At a later date, the organization can adopt cultural changes that make this investment partially redun-dant. This leads to under-investment. However, as agents invest more, the organization’s opportunity cost of a change increases, which in turn increases each agents ’ incentives to invest. This externality among agents leads to multiple equilibria. Otherwise similar organizations can thus exhibit either high investment levels and low probability of changes (strong culture) or low investment levels and high probability of changes (weak culture). We also explore some implications for the nature and management of corporat