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Bureaucracy as a Mechanism to Generate Information

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  • Walter Novaes

    ()
    (Pontifical Catholic University of Rio de Janeiro (PUC-Rio))

  • Luigi Zingales

    ()
    (University of Chicago)

Abstract

Firms that maintain no formal record of actions and events would hardly be considered well managed. Yet, organizations that require the recording of actions and the filing of reports are often labelled ``bureaucratic" and inefficient. We argue that the thin line between efficient management practices and inefficient bureaucracy is crossed to curb managerial agency costs in a multilayer hierarchy. The model predicts that bureaucracy increases with the frequency of managerial turnover, and it establishes a link between bureaucracy, incentive schemes, and leverage in a cross-section of firms.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 35 (2004)
Issue (Month): 2 (Summer)
Pages: 245-259

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Handle: RePEc:rje:randje:v:35:y:2004:2:p:245-259

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  1. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February.
  2. Felli, Leonardo & Hortala-Vallve, Rafael, 2011. "Preventing Collusion through Discretion," CEPR Discussion Papers 8302, C.E.P.R. Discussion Papers.
  3. Edlin, Aaron S & Stiglitz, Joseph E, 1995. "Discouraging Rivals: Managerial Rent-Seeking and Economic Inefficiencies," American Economic Review, American Economic Association, vol. 85(5), pages 1301-12, December.
  4. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  5. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
  6. Warner, Jerold B. & Watts, Ross L. & Wruck, Karen H., 1988. "Stock prices and top management changes," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 461-492, January.
  7. Gilson, Stuart C., 1989. "Management turnover and financial distress," Journal of Financial Economics, Elsevier, vol. 25(2), pages 241-262, December.
  8. Prendergast, Canice J, 1995. "A Theory of Responsibility in Organizations," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 387-400, July.
  9. Harris, Milton & Raviv, Artur, 1990. " Capital Structure and the Informational Role of Debt," Journal of Finance, American Finance Association, vol. 45(2), pages 321-49, June.
  10. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  11. Denis, David J & Denis, Diane K, 1995. " Performance Changes Following Top Management Dismissals," Journal of Finance, American Finance Association, vol. 50(4), pages 1029-57, September.
  12. Milgrom, Paul & Roberts, John, 1990. "The Efficiency of Equity in Organizational Decision Processes," American Economic Review, American Economic Association, vol. 80(2), pages 154-59, May.
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