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On the (Sub)optimality of Multi-tier Hierarchies: Coordination versus Motivation Author info | Abstract | Publisher info | Download info | Related research | Statistics Choe, Chongwoo
Ishiguro, Shingo
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This paper studies internal organization of a firm using an incomplete contracting approach a la Grossman-Hart-Moore and Aghion-Tirole. The two key ingredients of our model are externalities among tasks that require coordination, and investment in task-specific human capital. We compare three types of organizational structures: centralization where the decision authority for all tasks is given to the party without task-specific human capital, decentralization where the decision authority for each task is given to the party with necessary human capital, and hierarchical delegation where the decision authority is allocated in a hierarchical fashion. Centralization is optimal when externalities and the requisite coordination are the main issue in organization design. Decentralization is optimal if the investment in human capital is more important. Hierarchical delegation is optimal in the intermediate case. We also discuss the optimal pattern of hierarchical delegation as well as several directions extending the basic model.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
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Date of creation: Jul 2008Date of revision:
Handle: RePEc:pra:mprapa:13451Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany Phone: +49-(0)89-2180-2219 Fax: +49-(0)89-2180-3900 Web page: http://mpra.ub.uni-muenchen.de More information through EDIRC
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Keywords: Delegation ; Incomplete Contracts ; Hierarchy ; Other versions of this item:
Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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