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On the Design of Hierarchies: Coordination Versus Specialization

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  • Hart, Oliver D.
  • Moore, John

Abstract

We consider an economy that has to decide how assets are to be used. Agents have ideas, but these ideas conflict. We suppose that decision†making authority is determined by hierarchy: each asset has a chain of command, and the most senior person with an idea exercises authority. We analyze the optimal hierarchical structure given that some agents coordinate and other specialize. Among other things, our theory explains why coordinators should typically be senior to specialists and why pyramidal hierarchies may be optimal. Our theory also throws light on the optimal degree of decentralization inside a firm and on firm boundaries.

Suggested Citation

  • Hart, Oliver D. & Moore, John, 2005. "On the Design of Hierarchies: Coordination Versus Specialization," Scholarly Articles 3448676, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:3448676
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    References listed on IDEAS

    as
    1. Raghuram G. Rajan & Luigi Zingales, 2001. "The Firm as a Dedicated Hierarchy: A Theory of the Origins and Growth of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 805-851.
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    More about this item

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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