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The hierarchical structure of a firm: a geometric approach

Author

Listed:
  • Kam Ki Tang

    () (School of Economics, University of Queensland)

  • Rodney Beard

    () (ngevie@yahoo.com)

  • Evelyn Ng

    () (School of Economics, University of Queensland)

  • Leopoldo Yanes

    () (School of Economics, University of Queensland)

Abstract

This paper develops a novel, geometric approach to modelling a firm's hierarchical structure. We model the firm''s hierarchy as the sector of a circle, in which the radius represents the height of the hierarchy and the angle of the sector represents the width of the hierarchy. The firm then chooses the height and angle in order to maximise profit. We analyse the impacts of changes in economies of scale, input substitutability and labour productivity on the firm''s hierarchical structure. We find that the firm will unambiguously become more hierarchical as specialisation of its workers increases or as its output price increases. The effect of changes in scale economies is contingent on the level of task specialisation and output price.

Suggested Citation

  • Kam Ki Tang & Rodney Beard & Evelyn Ng & Leopoldo Yanes, 2005. "The hierarchical structure of a firm: a geometric approach," Economics Bulletin, AccessEcon, vol. 12(13), pages 1-7.
  • Handle: RePEc:ebl:ecbull:eb-05l00004
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    References listed on IDEAS

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    1. Yingyi Qian, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 527-544.
    2. Dubey, Pradeep & Haimanko, Ori, 2003. "Optimal scrutiny in multi-period promotion tournaments," Games and Economic Behavior, Elsevier, vol. 42(1), pages 1-24, January.
    3. Hu, Xingwei & Shapley, Lloyd S., 2003. "On authority distributions in organizations: equilibrium," Games and Economic Behavior, Elsevier, vol. 45(1), pages 132-152, October.
    4. Hu, Xingwei & Shapley, Lloyd S., 2003. "On authority distributions in organizations: controls," Games and Economic Behavior, Elsevier, vol. 45(1), pages 153-170, October.
    5. Nathalie Greenan, 2003. "Organisational change, technology, employment and skills: an empirical study of French manufacturing," Cambridge Journal of Economics, Oxford University Press, vol. 27(2), pages 287-316, March.
    6. Mark Casson (ed.), 1996. "The Theory Of The Firm," Books, Edward Elgar Publishing, number 536.
    7. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Luis Façanha & Marcelo Resende, 2010. "Determinants of hierarchical structure in industrial firms: an empirical study," Economics of Governance, Springer, vol. 11(3), pages 295-308, June.
    2. Kam Ki Tang & Leopoldo Yanes, 2009. "The hierarchical structure of the firm: a geometric perspective," Prague Economic Papers, University of Economics, Prague, vol. 2009(2), pages 156-175.
    3. Luis Otávio Façanha & Marcelo Resende, 2006. "Hierarchical Structure in Brazilian Industrial Firms: an Econometric Study," Economics Working Papers ECO2006/1, European University Institute.

    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General

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