The impact of complexity and managerial diseconomies on hierarchical governance
AbstractBased on data from Chilean construction projects, we evaluate how the boundary choice of a focal activity is affected by the number of activities integrated elsewhere in a project and by the level of “between complexity” and “within complexity” of those activities. Our results show that managerial diseconomies of scale, which arise when contractors integrate more activities, and the different types of complexity, affect the relative advantages of hierarchical governance. In a novel result, we also show that interactions between the number of integrated activities and the types of complexity affect the relative merits of hierarchical governance to handle an activity, meaning that complexity and the extent of a project's integration are systematically intertwined in the explanation of boundary choices. Our findings indicate a need for research on interdependencies between different boundary choices and suggest that the evaluation of these interdependencies should consider the complexity of activities.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 84 (2012)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/jebo
Firm boundaries; Complexity; Managerial diseconomies; Make or buy;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alchian, Armen A & Demsetz, Harold, 1972.
"Production , Information Costs, and Economic Organization,"
American Economic Review,
American Economic Association, vol. 62(5), pages 777-95, December.
- Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
- Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1891-1921, October.
- McAfee, R Preston & McMillan, John, 1995.
"Organizational Diseconomies of Scale,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 4(3), pages 399-426, Fall.
- Anna Dubois & Lars-Erik Gadde, 2002. "The construction industry as a loosely coupled system: implications for productivity and innovation," Construction Management and Economics, Taylor & Francis Journals, vol. 20(7), pages 621-631.
- Sharon Novak & Steven D. Eppinger, 2001. "Sourcing By Design: Product Complexity and the Supply Chain," Management Science, INFORMS, vol. 47(1), pages 189-204, January.
- Michael Buzzelli & Richard Harris, 2006. "Cities as the Industrial Districts of Housebuilding," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 30(4), pages 894-917, December.
- Masten, Scott E & Meehan, James W, Jr & Snyder, Edward A, 1991. "The Costs of Organization," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(1), pages 1-25, Spring.
- Manuel González & Benito Arruñada & Alberto Fernández, 1999.
"Causes of subcontracting: Evidence from panel data on construction firms,"
Economics Working Papers
428, Department of Economics and Business, Universitat Pompeu Fabra.
- Gonzalez-Diaz, Manuel & Arrunada, Benito & Fernandez, Alberto, 2000. "Causes of subcontracting: evidence from panel data on construction firms," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 167-187, June.
- Lopez-de-Silanes, Florencio & Phalippou, Ludovic & Gottschalg, Olivier, 2010.
"Giants at the Gate: On the Cross-section of Private Equity Investment Returns,"
28487, University Library of Munich, Germany.
- Florencio Lopez-de-Silanes & Ludovic Phalippou & Oliver Gottschalg, 2011. "Giants at the Gate: On the Cross-Section of Private Equity Investment Returns," Tinbergen Institute Discussion Papers 11-035/2/DSF12, Tinbergen Institute.
- Graham Winch, 2001. "Governing the project process: a conceptual framework," Construction Management and Economics, Taylor & Francis Journals, vol. 19(8), pages 799-808.
- George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
- Demsetz, Harold, 1988. "The Theory of the Firm Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 141-61, Spring.
- Steven Tadelis, 2002. "Complexity, Flexibility, and the Make-or-Buy Decision," American Economic Review, American Economic Association, vol. 92(2), pages 433-437, May.
- Todd R. Zenger, 1994. "Explaining Organizational Diseconomies of Scale in R&D: Agency Problems and the Allocation of Engineering Talent, Ideas, and Effort by Firm Size," Management Science, INFORMS, vol. 40(6), pages 708-729, June.
- Barzel, Yoram, 1982. "Measurement Cost and the Organization of Markets," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 27-48, April.
- Rasmusen, Eric & Zenger, Todd, 1990. "Diseconomies of Scale in Employment Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 65-92, Spring.
- Sharon Novak & Scott Stern, 2009. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," Management Science, INFORMS, vol. 55(2), pages 311-332, February.
- Jeffrey T. Macher, 2006. "Technological Development and the Boundaries of the Firm: A Knowledge-Based Examination in Semiconductor Manufacturing," Management Science, INFORMS, vol. 52(6), pages 826-843, June.
- Argyres, Nicholas S. & Liebeskind, Julia Porter, 2002. "Governance inseparability and the evolution of US biotechnology industry," Journal of Economic Behavior & Organization, Elsevier, vol. 47(2), pages 197-219, February.
- C. Tsuriel Somerville, 1999. "The Industrial Organization of Housing Supply: Market Activity, Land Supply and the Size of Homebuilder Firms," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(4), pages 669-694.
- repec:dgr:uvatin:2011035 is not listed on IDEAS
- Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123.
- Lamar Pierce, 2012. "Organizational Structure and the Limits of Knowledge Sharing: Incentive Conflict and Agency in Car Leasing," Management Science, INFORMS, vol. 58(6), pages 1106-1121, June.
- Dilip Mookherjee, 2005.
"Decentralization, Hierarchies and Incentives: A Mechanism Design Perspective,"
Boston University - Department of Economics - Working Papers Series
WP2005-034, Boston University - Department of Economics, revised Sep 2005.
- Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.