Journal of Economic Behavior & Organization 80 (2011) 375–396 Contents lists available at ScienceDirect Journal of Economic Behavior & Organization j ourna l ho me pag e: www.elsevier.com/locate/j ebo Market characteristics, intra-firm coordination, and the choice of human resource management systems: Theory and evidence  Takao Kato a,* , Hideo Owan b a Department of Economics (Persson 222), Colgate University, 13 Oak Drive, Hamilton, NY 13346, USA b Institute of Social Science, University of Tokyo, Japan a r t i c l e i n f o Article history: Received 21 April 2009 Received in revised form 23 December 2010 Accepted 2 April 2011 Available online 16 April 2011 JEL classification: M5 L2 J53 D2 Keywords: Innovative work practices Human resource management practices Self-Managed Teams Problem solving teams Task coordination Information sharing adoption a b s t r a c t This paper begins by constructing a team-theoretical model of organizational adaptation and coordination with three distinct task coordination modes: vertical control, horizontal coordination, and hybrid coordination. The model is then used to provide fresh insights on complementarities involving team work organization, communication channels, train- ing and hiring, and other human resource management practices, and illustrate how such choice of practices is affected by the firm’s output market conditions. Our econometric anal- ysis of new data from Japan which provide up-to-date information on the adoption of new team-based instruments for a horizontal coordination system (cross-functional problem solving project teams and Self-Managed Teams) yields results that are broadly consis- tent with the theory. First, new team-based instruments are more likely to be adopted by firms with well-established formal shop-floor-based communication channels (such as shopfloor committees), while they are much less likely to be adopted by firms with well- established information sharing institutions such as joint labor-management committees, which presumably enhance the efficiency of the vertical control system by minimizing labor-management communication errors. Finally, firms in more competitive markets and those with a higher concentration of sales among a small number of customers are more likely to adopt both types of team, whereas firms facing more erratic price movement tend not to adopt Self-Managed Teams. © 2011 Elsevier B.V. All rights reserved. 1. Introduction Much of the literature on innovative HRMPs (Human Resource Management Practices) focuses on their effects on enterprise performance. It generally finds that HRM systems with complementary practices such as teams, joint labor- management committees, and incentive pay raise productivity or other firm performance measures. 1  Owan acknowledges support from the Nihon Keizai Kenky ¯ u Shorei Zaidan and Nihon S¯ oz ¯ o Ky ¯ oiku Kenky ¯ u Jyo. We thank participants at the Trans- Pacific Labor Seminar at UC-Santa Barbara, the Contract Theory Workshop at Osaka University, Corporate Governance Workshop at the Research Institute of Economy, Trade, and Industry, and the 2010 annual meeting of Socio-Economic History Association in Japan. We are grateful to Kanichiro Suzuki and the Tokyo Institute of Technology for administering the Organization and Human Resources Survey of Japanese Firms. * Corresponding author. Tel.: +1 315 228 7562; fax: +1 315 228 7033. E-mail addresses: tkato@colgate.edu (T. Kato), owan@iss.u-tokyo.ac.jp (H. Owan). 1 See, for example, Ichniowski et al. (1997), Freeman et al. (2000), Cappelli and Neumark (2001), Hamilton et al. (2003), Boning et al. (2007), Black and Lynch (2001, 2004), and Bartel (2004) for the U.S.; Jones and Kato (1995) and Kato and Morishima (2002) for Japan; Leoni et al. (2001) for Italy; Addison and Belfield (2000), Conyon and Freeman (2001), DeVaro (2006), and Heywood et al. (2008) for the U.K.; Eriksson (2003) for Denmark; Bayo-Moriones et al. (2003) for Spain; and Zwick (2004) for Germany. 0167-2681/$ – see front matter © 2011 Elsevier B.V. All rights reserved. doi:10.1016/j.jebo.2011.04.001