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Organizational Structure and the Limits of Knowledge Sharing: Incentive Conflict and Agency in Car Leasing

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  • Lamar Pierce

    () (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)

Abstract

This paper argues that conflicting incentives among managers may impede potential knowledge-sharing benefits from vertical integration. I study knowledge-based agency costs from vertical integration in car leasing, where manufacturer-owned captive lessors compete with independent lessors. Both organizational forms must acquire and integrate diffuse knowledge to accurately predict vehicle depreciation--a condition critical for profitability. Using a data set of 180,000 leases, I compare contracts of independent and captive lessors across car models, market conditions, and product life cycles. I find that managers in vertically integrated firms have conflicting incentives on whether to accurately and completely share proprietary knowledge, and show that these incentives appear to generate agency costs inconsistent with corporate profitability as managers selectively use and share knowledge for personal gain. The findings suggest that most knowledge benefits of vertical integration will be nullified when managerial interests are incompatible with the profit concerns of the firm. This paper was accepted by Bruno Cassiman, business strategy.

Suggested Citation

  • Lamar Pierce, 2012. "Organizational Structure and the Limits of Knowledge Sharing: Incentive Conflict and Agency in Car Leasing," Management Science, INFORMS, vol. 58(6), pages 1106-1121, June.
  • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:6:p:1106-1121
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    File URL: http://dx.doi.org/10.1287/mnsc.1110.1472
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Efraim Benmelech & Ralf R. Meisenzahl & Rodney Ramcharan, 2017. "The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 317-365.
    2. Cathy Beaudoin & Anna Cianci & George Tsakumis, 2015. "The Impact of CFOs’ Incentives and Earnings Management Ethics on their Financial Reporting Decisions: The Mediating Role of Moral Disengagement," Journal of Business Ethics, Springer, vol. 128(3), pages 505-518, May.
    3. Tomasz Obloj & Peter Zemsky, 2015. "Value creation and value capture under moral hazard: Exploring the micro-foundations of buyer– supplier relationships," Strategic Management Journal, Wiley Blackwell, vol. 36(8), pages 1146-1163, August.
    4. Brahm, Francisco & Tarziján, Jorge, 2012. "The impact of complexity and managerial diseconomies on hierarchical governance," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 586-599.
    5. repec:eee:intfor:v:33:y:2017:i:4:p:864-877 is not listed on IDEAS
    6. repec:eee:respol:v:47:y:2018:i:1:p:326-341 is not listed on IDEAS
    7. repec:bla:stratm:v:38:y:2017:i:10:p:2121-2142 is not listed on IDEAS
    8. Victor M. Bennett & Lamar Pierce, 2016. "Motivation matters: Corporate scope and competition in complementary product markets," Strategic Management Journal, Wiley Blackwell, vol. 37(7), pages 1304-1315, July.
    9. repec:bla:stratm:v:38:y:2017:i:2:p:300-321 is not listed on IDEAS
    10. Justin P. Johnson & Henry S. Schneider & Michael Waldman, 2014. "The Role and Growth of New-Car Leasing: Theory and Evidence," Journal of Law and Economics, University of Chicago Press, vol. 57(3), pages 665-698.

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