Advanced Search
MyIDEAS: Login

Testing Models of Hierarchy: Span of Control, Compensation and Career Dynamics

Contents:

Author Info

  • Smeets, Valérie

    (Department of Economics, Aarhus School of Business)

  • Warzynski, Frederic

    (Department of Economics, Aarhus School of Business)

Abstract

In this paper, we test implications from various theories of hierarchies in organizations, in particular the assignment model (Rosen, 1982), the incentives model (Rosen, 1986), the supervision model (Qian, 1994) and the knowledge- based hierarchy model (Garicano, 2000; Garicano and Rossi-Hansberg, 2006). We use a unique dataset providing personnel records from a large European firm in an high tech manufacturing industry from January 1997 to May 2004. An unusually rare feature of this dataset is that relationships within the hierarchy are reported and we can therefore identify the chain of command. Some of our results are in line with the Garicano and Rossi-Hansberg (2006) model of hierarchies when communication costs are decreasing: we observe an increase in the span, an increase in wage inequality between job levels, and the introduction of a new hierarchical level. However, we also find evidence of learning and reallocation of talent within and across job levels, a finding that can not be explained by a static model of knowledge based hierarchy but rather by dynamic models of careers in organizations (e.g. Gibbons and Waldman, 1999). We then propose a new model of hierarchies where individuals accumulate general and managerial human capital on the job, and firms learn gradually about individuals' managerial ability and allocate managers to span according to their expected effective ability. This theory explains our empirical findings and provides a richer theory of careers in hierarchie

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.hha.dk/nat/wper/06-10_vasfwa.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 06-10.

as in new window
Length: 41 pages
Date of creation: 01 Nov 2006
Date of revision:
Handle: RePEc:hhs:aareco:2006_010

Contact details of provider:
Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Phone: +45 89 486396
Fax: +45 8615 5175
Web page: http://www.asb.dk/departments/nat.aspx
More information through EDIRC

Related research

Keywords: hierarchy; span of control; wage determination; promotions; careers;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Raghuram Rajan & Julie Wulf, 2003. "The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies," NBER Working Papers 9633, National Bureau of Economic Research, Inc.
  2. Luis Garicano & Esteban Rossi-Hansberg, 2005. "Organization and Inequality in a Knowledge Economy," NBER Working Papers 11458, National Bureau of Economic Research, Inc.
  3. Mathias Dewatripont & Patrick Bolton, 1994. "The firm as a communication network," ULB Institutional Repository 2013/9595, ULB -- Universite Libre de Bruxelles.
  4. Michael Gibbs & Wallace Hendricks, 2004. "Do formal salary systems really matter?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(1), pages 71-93, October.
  5. Garicano, Luis & Hubbard, Thomas N., 2005. "Hierarchical sorting and learning costs: Theory and evidence from the law," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 349-369, October.
  6. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-27, September.
  7. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  8. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  9. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
  10. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123.
  11. 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.
  12. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November.
  13. Pedro Ortin-Angel & Vicente Salas-Fumas, 2002. "Compensation and Span of Control in Hierarchical Organizations," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 848-876, October.
  14. Qian, Yingyi, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 527-44, July.
  15. John Geanakoplos & Paul R. Milgrom, 1988. "A Theory of Hierarchies Based on Limited Managerial Attention," Cowles Foundation Discussion Papers 775R, Cowles Foundation for Research in Economics, Yale University.
  16. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  17. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:aareco:2006_010. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helle Vinbaek Stenholt).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.