Incentives, Scale Economies and Organizational Form
AbstractWe model organization as the command-and-communication network of managers erected on top of technology (which is modeled as a collection of plants). In our framework, the role of a manager is to deal with shocks that affect the plants that he oversees directly or indirectly. Organizational form is then an instrument for (a) economizing on managerial costs, and (b) providing managerial incentives. We show that two particular organizational forms, the M-form (multidivisional form) and the U-form (unitary form), are the optimal structures when shocks are sufficiently "big." We argue however that, under certain empirical assumptions, the M-form is likely to be strictly preferable once incentives are taken into account. We conclude by showing that the empirical hypotheses on which this comparison rests are satisfied for Chinese data.
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Bibliographic InfoPaper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1801.
Date of creation: 1997
Date of revision:
Other versions of this item:
- Eric Maskin & Yingyi Quan & Chenggang Xu, 1997. "Incentives, Scale Economies, and Organizational Form," William Davidson Institute Working Papers Series 51, William Davidson Institute at the University of Michigan.
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- Chen, Ye & Li, Hongbin & Zhou, Li-An, 2005.
"Relative performance evaluation and the turnover of provincial leaders in China,"
Elsevier, vol. 88(3), pages 421-425, September.
- Ye Chen & Hongbin Li & Li-An Zhou, 2005. "Relative Performance Evaluation and the Turnover of Provincial Leaders in China," Discussion Papers 00010, Chinese University of Hong Kong, Department of Economics.
- Masahiko Aoki, . "The Evolution of Organizational Conventions and Gains from Diversity," Working Papers 97032, Stanford University, Department of Economics.
- Hongbin Li & Li-An Zhou, 2003. "Political Turnover and Economic Performance: The Disciplinary Role of Personnel Control in China," Discussion Papers 00002, Chinese University of Hong Kong, Department of Economics.
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