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On the Design of Hierarchies: Coordination Versus Specialization

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Author Info
Oliver Hart
John Moore

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Abstract

We develop a model of hierarchies based on the allocation of authority. A firm's owners have ultimate authority over a firm's decisions, but they have limited time or capacity to exercise this authority. Hence owners must delegate authority to subordinates. However, these subordinates also have limited time or capacity and so further delegation must occur. We analyze the optimal chain of command given that different agents have different tasks: some agents are engaged in coordination and others in specialization. Our theory throws light on the nature of hierarchy, the optimal degree of decentralization, and the boundaries of the firm.

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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number 375.

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Date of creation: Oct 1999
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Handle: RePEc:cep:stitep:375

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Keywords: organisations; hierarchies; coordination; specialisation;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Michael D. Hurd & James P. Smith, 1999. "Anticipated and Actual Bequests," NBER Working Papers 7380, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Robert E. Lipsey, 1999. "Foreign Production by U.S. Firms and Parent Firm Employment," NBER Working Papers 7357, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. 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.
  4. Bolton, Patrick & Farrell, Joseph, 1990. "Decentralization, Duplication, and Delay," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 803-26, August. [Downloadable!] (restricted)
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  5. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
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  6. David C. King & Richard J. Zeckhauser, 1999. "Congressional Vote Options," NBER Working Papers 7342, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
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