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Influence Costs and Hierarchy

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Author Info

  • Inderst, Roman

    ()
    (Sonderforschungsbereich 504)

  • Müller, Holger M.

    ()
    (Department of Economics, University of Mannheim)

  • Wärneryd, Karl

    ()
    (Department of Economics, Stockholm School of Economics)

Abstract

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 1920's 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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Bibliographic Info

Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 00-30.

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Length: 27 pages
Date of creation: 21 Jun 2000
Date of revision:
Handle: RePEc:xrs:sfbmaa:00-30

Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, is gratefully acknowledged.
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Cited by:
  1. Robert Dur & Hein Roelfsema, 2007. "Social Exchange and Common Agency in Organizations," CESifo Working Paper Series 2030, CESifo Group Munich.
  2. Ivo Bischoff & Frédéric Blaeschke, 2013. "Incentives and Influence Activities in the Public Sector: the Trade-off in Performance Budgeting and Conditional Grants," MAGKS Papers on Economics 201320, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Matthias Kräkel, 2006. "Firm Size, Economic Situation and Influence Activities," Bonn Econ Discussion Papers bgse16_2006, University of Bonn, Germany.
  4. Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers bgse15_2007, University of Bonn, Germany.
  5. repec:ebl:ecbull:v:12:y:2002:i:2:p:1-13 is not listed on IDEAS
  6. Felix Höffler & Sebastian Kranz, 2011. "Imperfect legal unbundling of monopolistic bottlenecks," Journal of Regulatory Economics, Springer, vol. 39(3), pages 273-292, June.
  7. Inderst, Roman & Mueller, Holger M & Wärneryd, Karl, 2002. "Distributional Conflict in Organisations," CEPR Discussion Papers 3315, C.E.P.R. Discussion Papers.
  8. Johannes Münster, 2009. "Group contest success functions," Economic Theory, Springer, vol. 41(2), pages 345-357, November.
  9. Kräkel, Matthias, 2006. "On the "Adverse Selection" of Organizations," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 168, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  10. Warneryd, Karl, 2001. "Replicating contests," Economics Letters, Elsevier, vol. 71(3), pages 323-327, June.
  11. Wulf, Julie, 2009. "Influence and inefficiency in the internal capital market," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 305-321, October.
  12. Cedomir Ljubojevic & Gordana Ljubojevic & Nina Maksimovic, 2013. "Corporate Governance and Competitive Capability in Serbian Companies," MIC 2013: Industry, Science and Policy Makers for Sustainable Future; Proceedings of the 14th International Conference, Koper, 21–23 November 2013 [Selected Papers], University of Primorska, Faculty of Management Koper.
  13. Fu, Qiang & Lu, Jingfeng, 2006. "The beauty of "bigness" in contest design: merging or splitting?," MPRA Paper 947, University Library of Munich, Germany.
  14. Wärneryd, Karl, 2014. "Rent Seeking and Organizational Structure," Working Paper Series in Economics and Finance 749, Stockholm School of Economics.
  15. Gürtler, Oliver, 2006. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 169, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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