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Distributional conflict in organizations

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  • Inderst, Roman
  • Muller, Holger M.
  • Warneryd, Karl

Abstract

Hierarchy can function as an instrument to channel influence activities or power struggles in organizations. Contrary to what has frequently been argued, we show that multi-divisional organizations may involve lower influence costs than single-tier organizations, even though they offer more scope for organizational conflict and have more executives that can be influenced. These benefits derive from two effects. First, part of the conflict in multi-divisional organizations takes place on the division level, where a small number of agents fight over only a fraction of the overall prize. Second, by grouping agents into common divisions, multi-divisional organizations create free-rider problems in rent seeking. We apply our framework to divestitures and the transition from the U- to the M-form by US corporations in the 1920s.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 51 (2007)
Issue (Month): 2 (February)
Pages: 385-402

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Handle: RePEc:eee:eecrev:v:51:y:2007:i:2:p:385-402

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References

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Citations

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Cited by:
  1. Matthias Kräkel, 2006. "Firm Size, Economic Situation and Influence Activities," Bonn Econ Discussion Papers bgse16_2006, University of Bonn, Germany.
  2. Hausken, Kjell, 2012. "On the inappropriateness of collective rent seeking analysis when agents exert within-group and between-group efforts," Economics Letters, Elsevier, vol. 116(3), pages 504-507.
  3. Aner Sela, 2002. "Contest Architecture (jointly with Benny Moldovanu)," Theory workshop papers 357966000000000088, UCLA Department of Economics.
  4. Antoine Renucci, 2008. "Access to financing, rents, and organization of the firm," Post-Print halshs-00365983, HAL.
  5. Wärneryd, Karl, 2013. "Common-value contests with asymmetric information," Economics Letters, Elsevier, vol. 120(3), pages 525-527.
  6. Oliver Gürtler, 2010. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(4), pages 359-377, October.
  7. Kräkel, Matthias, 2006. "On the "Adverse Selection" of Organizations," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 168, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. Sina Risse, 2011. "Two-stage group rent-seeking with negatively interdependent preferences," Public Choice, Springer, vol. 147(3), pages 259-276, June.
  9. Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers bgse15_2007, University of Bonn, Germany.
  10. Felix Höffler & Sebastian Kranz, 2007. "Imperfect Legal Unbundling of Monopolistic Bottlenecks," Bonn Econ Discussion Papers bgse16_2007, University of Bonn, Germany.
  11. Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.
  12. Johannes Münster, 2009. "Group contest success functions," Economic Theory, Springer, vol. 41(2), pages 345-357, November.
  13. Renucci, Antoine, 2008. "Access to financing, rents, and organization of the firm," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 337-346, September.
  14. Johannes Münster & Klaas Staal, 2012. "How organizational structure can reduce rent-seeking," Public Choice, Springer, vol. 150(3), pages 579-594, March.

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