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On the Design of Hierarchies: Coordination versus Specialization

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  • Oliver Hart
  • John Moore

Abstract

We consider an economy that has to decide how assets are to be used. Agents have ideas, but these ideas conflict. We suppose that decision-making authority is determined by hierarchy. Specifically, each asset has a chain of command, and the most senior person in the chain exercises authority. If a senior person does not need access, he defers to junior person. We analyze the optimal hierarchical structure given that different agents have different tasks: some agents coordinate and others specialize. Our theory throws light on the optimal degree of decentralization inside a firm and on firm boundaries.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 113 (2005)
Issue (Month): 4 (August)
Pages: 675-702

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Handle: RePEc:ucp:jpolec:v:113:y:2005:i:4:p:675-702

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References

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  1. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Oliver Hart & John Moore, 1999. "On the Design of Hierarchies: Coordination Versus Specialization," NBER Working Papers 7388, National Bureau of Economic Research, Inc.
  3. Argyres, Nicholas S., 1995. "Technology strategy, governance structure and interdivisional coordination," Journal of Economic Behavior & Organization, Elsevier, vol. 28(3), pages 337-358, December.
  4. Oliver Hart & John Moore, 1999. "On the design of hierarchies: coordination versus specialization," LSE Research Online Documents on Economics 19340, London School of Economics and Political Science, LSE Library.
  5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  6. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  7. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
  8. Van Zandt, Timothy, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 633-58, July.
  9. Bolton, Patrick & Farrell, Joseph, 1990. "Decentralization, Duplication, and Delay," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 803-26, August.
  10. David C. King & Richard J. Zeckhauser, 1999. "Congressional Vote Options," NBER Working Papers 7342, National Bureau of Economic Research, Inc.
  11. Michael D. Hurd & James P. Smith, 1999. "Anticipated and Actual Bequests," NBER Working Papers 7380, National Bureau of Economic Research, Inc.
  12. Robert E. Lipsey, 1999. "Foreign Production by U.S. Firms and Parent Firm Employment," NBER Working Papers 7357, National Bureau of Economic Research, Inc.
  13. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
  14. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, October.
  15. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1999. "Informal Authority in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 56-73, April.
  16. Michael Keren & David Levhari, 1979. "The Optimum Span of Control in a Pure Hierarchy," Management Science, INFORMS, vol. 25(11), pages 1162-1172, November.
  17. Alfred D. Chandler, 1969. "Strategy and Structure: Chapters in the History of the American Industrial Enterprise," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530090, December.
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  1. Against ambition
    by chris dillow in Stumbling and Mumbling on 2008-03-02 12:51:38
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