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Rent Seeking in Hierarchical Firms

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  • Ira N. Gang

    ()
    (Rutgers University)

  • Gil S. Epstein

    ()
    (Bar Ilan University)

Abstract

Hierarchical firms are enterprises with rigid internal job ladders. We examine the state enterprise as the prototypical hierarchical firm. In the state enterprise, promotion of employees through the internal hierarchy is determined by the workers’ allocation of time between rent seeking and productive activity. Our model shows that given the incentive structure of the state enterprise we tend to see less productive and more adept rent seekers at senior management positions in such firms. Moreover, as we move up the firm’s hierarchy, a decline in the productivity levels of the workers will be observed.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200218.

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Date of creation: 30 Jul 2002
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Handle: RePEc:rut:rutres:200218

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Related research

Keywords: hierarchical firms; internal job ladder; promotion; rent-seeking; state enterprise;

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  1. Epstein, Gil S., 1996. "The extraction of natural resources from two sites under uncertainty," Economics Letters, Elsevier, vol. 51(3), pages 309-313, June.
  2. Epstein, Gil S & Hillman, Arye L & Ursprung, Heinrich W, 1999. "The King Never Emigrates," Review of Development Economics, Wiley Blackwell, vol. 3(2), pages 107-21, June.
  3. Michael Keren & David Levhari, 1979. "The Optimum Span of Control in a Pure Hierarchy," Management Science, INFORMS, vol. 25(11), pages 1162-1172, November.
  4. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  5. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, 03.
  6. Keren, Michael & Levhari, David, 1989. "Decentralization, aggregation, control loss and costs in a hierarchical model of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 11(2), pages 213-236, March.
  7. Raaj Kumar Sah & Joseph E. Stiglitz, 1984. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
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