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The hierarchical structure of the firm: a geometric perspective

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  • Kam Ki Tang
  • Leopoldo Yanes

Abstract

This paper incorporates hierarchical structure into the neoclassical theory of the firm. Firms are hierarchical in two respects: the organization of workers in production and the wage structure. The firm's hierarchy is represented as a sector of a circle, where the radius represents the hierarchy's height, the width of the sector represents the breadth of the hierarchy at a given height, and the angle of the sector represents the span of control. A perfectly competitive firm chooses height and width, as well as capital, in order to maximize profit. We analyse the short-run and long-run impact of changes in scale economies, input substitutability, and input and output prices on the firm's hierarchical structure. We find that the firm grows as the specialization of its workers increases or as its output price increases relative to input prices. The effect of changes in scale economies is contingent on the price of output. The model also brings forth an analysis of wage inequality within the firm, which is found to be independent of the firm's hierarchical organization of workers, and only depends on the firm's wage schedule.

Suggested Citation

  • Kam Ki Tang & Leopoldo Yanes, 2009. "The hierarchical structure of the firm: a geometric perspective," Prague Economic Papers, Prague University of Economics and Business, vol. 2009(2), pages 156-175.
    • Handle: RePEc:prg:jnlpep:v:2009:y:2009:i:2:id:347:p:156-175
    DOI: 10.18267/j.pep.347
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    Cited by:

    1. Luis Façanha & Marcelo Resende, 2010. "Determinants of hierarchical structure in industrial firms: an empirical study," Economics of Governance, Springer, vol. 11(3), pages 295-308, June.
    2. Kam Ki Tang & Leopoldo Yanes, 2009. "The hierarchical structure of the firm: a geometric perspective," Prague Economic Papers, Prague University of Economics and Business, vol. 2009(2), pages 156-175.
    3. Luis Otávio Façanha & Marcelo Resende, 2006. "Hierarchical Structure in Brazilian Industrial Firms: an Econometric Study," Economics Working Papers ECO2006/1, European University Institute.

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    More about this item

    Keywords

    inequality; theory of the firm; hierarchical structure; economies of scale; input substitutability;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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