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Internal Competition for Corporate Resources and Incentives in Teams

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  • Anthony M. Marino

    ()
    (University of Southern California)

  • J�n Z�bojn�k

    ()
    (University of Southern California)

Abstract

Invoking the free-rider problem in teams, many observers find profit sharing in large organizations puzzling, because it should have negligible incentive effects. We show that if a firm can be decomposed into two separate teams whose outputs can be observed, then profit sharing combined with competition between these two teams for internal resources frequently solves the free-rider problem. Using this result, we endogenize the firm's organizational structure and show that in the presence of economies of scale, small firms tend to organize as unitary firms, while large firms choose the multidivisional organizational form.

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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): 4 (Winter)
Pages: 710-727

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Handle: RePEc:rje:randje:v:35:y:2004:4:p:710-727

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Cited by:
  1. Sean P. Hargreaves Heap & Abhijit Ramalingam & Siddharth Ramalingam & Brock V. Stoddard, 2013. "Inequality and Effort: An Experiment on Competition Between Teams," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS), School of Economics, University of East Anglia, Norwich, UK. 13-08, School of Economics, University of East Anglia, Norwich, UK..
  2. Junichiro Ishida, 2013. "Multilayered Tournaments," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0879, Institute of Social and Economic Research, Osaka University.
  3. Guido Friebel & Michael Raith, 2010. "Resource Allocation and Organizational Form," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 2(2), pages 1-33, May.
  4. Cheng-Ping Chang & Chih-Ting Hsu & I-Jun Chen, 2013. "The relationship between the playfulness climate in the classroom and student creativity," Quality & Quantity: International Journal of Methodology, Springer, Springer, vol. 47(3), pages 1493-1510, April.
  5. Benndorf, Volker & Rau, Holger A., 2012. "Competition in the workplace: An experimental investigation," DICE Discussion Papers, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) 53, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  6. Ishida, Junichiro, 2009. "Incentives in academics: Collaboration under weak complementarities," Labour Economics, Elsevier, Elsevier, vol. 16(2), pages 215-223, April.
  7. Legge, Stefan & Schmid, Lukas, 2013. "Rankings, Random Successes, and Individual Performance," Economics Working Paper Series, University of St. Gallen, School of Economics and Political Science 1340, University of St. Gallen, School of Economics and Political Science.
  8. Kräkel, Matthias, 2010. "Shutdown Contests in Multi-Plant Firms and Governmental Intervention," IZA Discussion Papers 4852, Institute for the Study of Labor (IZA).

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