The choice of organizational form under intrafirm bargaining rules
AbstractThis paper studies the choice of organizational form under incomplete contracts. We identify an organizational form with a rule of ex-post bargaining and compare four types of organization: horizontal organizations, inverted pyramidal hierarchies, pyramidal hierarchies and vertical hierarchies. We show that if the human capital investments of all members are perfectly complementary, the horizontal organization is chosen. If the investments of two players including the owner are essential, the inverted pyramidal hierarchy can occur. Pyramidal hierarchies minimize the agency cost if investments are non-firm-specific. The vertical hierarchy emerges when the owner can motivate a player who undertakes firm-specific investment by assigning him to the middle tier. We also examine who should be assigned to the middle tier in a vertical hierarchy.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of the Japanese and International Economies.
Volume (Year): 26 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/622903
Organizational form; Firm-specific investment; Incomplete contract; Noncooperative bargaining rule;
Find related papers by JEL classification:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
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