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Distributional Conflict in Organisations

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Author Info
Inderst, Roman
Mueller, Holger M
Wärneryd, Karl

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Abstract

Hierarchy can function as an instrument to channel influence activities or power struggles in organizations. Contrary to what has frequently been argued, we show that multi-divisional organizations may involve lower influence costs than single-tier organizations, even though they offer more scope for organizational conflict and have more executives that can be influenced. These benefits derive from two effects. First, part of the conflict in multi-divisional organizations takes place on the division level, where a small number of agents fight over only a fraction of the overall prize. Second, by grouping agents into common divisions, multi-divisional organizations create free-rider problems in rent seeking. We apply our framework to divestitures and the transition from the U- to the M-form by US corporations in the 1920s.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3315.

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Date of creation: Apr 2002
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Handle: RePEc:cpr:ceprdp:3315

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Related research
Keywords: conflict; hierarchy; influence activities; U-form versus M-form;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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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.:
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    Other versions:
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    Other versions:
  5. Rajan, Raghuram G. & Zingales, Luigi, 2000. "The tyranny of inequality," Journal of Public Economics, Elsevier, vol. 76(3), pages 521-558, June. [Downloadable!] (restricted)
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  7. David S. Scharfstein & Jeremy C. Stein, 1997. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," NBER Working Papers 5969, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Raghuram Rajan & Henry Servaes & Luigi Zingales, . "The Cost of Diversity: The Diversification Discount and Inefficient Investment," CRSP working papers 463, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  15. 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. [Downloadable!] (restricted)
  16. Skaperdas, Stergios, 1998. " On the Formation of Alliances in Conflict and Contests," Public Choice, Springer, vol. 96(1-2), pages 25-42, July. [Downloadable!] (restricted)
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  21. 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. [Downloadable!] (restricted)
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  22. Karl Warneryd, 2000. "Inside vs. Outside Ownership: A Political Theory of the Firm," Econometric Society World Congress 2000 Contributed Papers 0985, Econometric Society. [Downloadable!]
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  23. David S. Scharfstein, 1998. "The Dark Side of Internal Capital Markets II: Evidence from Diversified Conglomerates," NBER Working Papers 6352, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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. Matthias Kräkel, 2006. "On the “Adverse Selection” of Organizations," Bonn Econ Discussion Papers bgse15_2006, University of Bonn, Germany. [Downloadable!]
    Other versions:
  2. Aner Sela, 2002. "Contest Architecture (jointly with Benny Moldovanu)," Theory workshop papers 357966000000000088, UCLA Department of Economics. [Downloadable!]
  3. Felix Höffler & Sebastian Kranz, 2007. "Imperfect Legal Unbundling of Monopolistic Bottlenecks," Bonn Econ Discussion Papers bgse16_2007, University of Bonn, Germany. [Downloadable!]
  4. Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers bgse15_2007, University of Bonn, Germany. [Downloadable!]
  5. Johannes Münster, 2009. "Group contest success functions," Economic Theory, Springer, vol. 41(2), pages 345-357, November. [Downloadable!] (restricted)
  6. Antoine Renucci, 2008. "Access to financing, rents, and organization of the firm," Post-Print halshs-00365983_v1, HAL. [Downloadable!]
  7. Oliver Gürtler, 2006. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Discussion Papers 169, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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