Inderst, Roman (Sonderforschungsbereich 504) Müller, Holger M. (Department of Economics) Wärneryd, Karl () (Dept. of Economics, Stockholm School of Economics)
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In an internal capital market, individual departments may compete for a share of the firm´s budget by engaging in wasteful influence activities. We show that firms with more levels of hierarchy may experience lower influence costs than less hierarchical firms, even though the former provide more opportunities for exerting influence. We further argue that the widely discussed change from the U-form to the M-form organization in the 1920s may be related to attempts to limit divisional lobbying. In particular, we show that influence costs under the U-form organization are lower than under the M-form organization if and only if the firm's operations are sufficiently small.
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Length: 27 pages Date of creation: 21 Jun 2000 Date of revision: Handle: RePEc:hhs:hastef:0392
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Matthias Kräkel, 2006.
"On the "Adverse Selection" of Organizations,"
Discussion Papers
168, 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.
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Matthias Kräkel, 2006.
"Firm Size, Economic Situation and Influence Activities,"
Discussion Papers
167, 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!]
Other versions: