Incentives, Information, and Organizational Form
AbstractFebruary 6, 1999 We model an organization as a hierarchy of managers erected on top of a technology (here consisting of a collection of plants). In our framework, the role of a manager is to take steps to reduce the adverse consequences of shocks that affect the plants beneath him. We argue that different organizational forms give rise to different information about managers' performance and therefore differ according to how effective incentives can be in encouraging a good performance. In particular, we show that, under certain assumptions, the M-form (multi-divisional form) is likely to provide better incentives than the U-form (unitary form) because it promotes yardstick competition (i.e., relative performance evaluation) more effectively. We conclude by presenting evidence that the assumptions on which this comparison rests are satisfied for Chinese data.
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Bibliographic InfoPaper provided by Stanford University, Department of Economics in its series Working Papers with number 99009.
Date of creation: 06 Feb 1999
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Other versions of this item:
- NEP-ALL-1999-07-19 (All new papers)
- NEP-CDM-1999-07-19 (Collective Decision-Making)
- NEP-FIN-1999-07-19 (Finance)
- NEP-IND-1999-07-19 (Industrial Organization)
- NEP-MIC-1999-07-19 (Microeconomics)
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