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Bureaucracy as a Mechanism to Generate Information

  • Walter Novaes

    ()

    (Pontifical Catholic University of Rio de Janeiro (PUC-Rio))

  • Luigi Zingales

    ()

    (University of Chicago)

Firms that maintain no formal record of actions and events would hardly be considered well managed. Yet, organizations that require the recording of actions and the filing of reports are often labelled ``bureaucratic" and inefficient. We argue that the thin line between efficient management practices and inefficient bureaucracy is crossed to curb managerial agency costs in a multilayer hierarchy. The model predicts that bureaucracy increases with the frequency of managerial turnover, and it establishes a link between bureaucracy, incentive schemes, and leverage in a cross-section of firms.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 35 (2004)
Issue (Month): 2 (Summer)
Pages: 245-259

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Handle: RePEc:rje:randje:v:35:y:2004:2:p:245-259
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  1. Harris, Milton & Raviv, Artur, 1990. " Capital Structure and the Informational Role of Debt," Journal of Finance, American Finance Association, vol. 45(2), pages 321-49, June.
  2. Paul R. Milgrom., 1987. "Employment Contracts, Influence Activities and Efficient Organization Design," Economics Working Papers 8741, University of California at Berkeley.
  3. Edlin, Aaron S & Stiglitz, Joseph E, 1995. "Discouraging Rivals: Managerial Rent-Seeking and Economic Inefficiencies," American Economic Review, American Economic Association, vol. 85(5), pages 1301-12, December.
  4. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  5. Milgrom, Paul & Roberts, John, 1990. "The Efficiency of Equity in Organizational Decision Processes," American Economic Review, American Economic Association, vol. 80(2), pages 154-59, May.
  6. Denis, David J & Denis, Diane K, 1995. " Performance Changes Following Top Management Dismissals," Journal of Finance, American Finance Association, vol. 50(4), pages 1029-57, September.
  7. Prendergast, Canice J, 1995. "A Theory of Responsibility in Organizations," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 387-400, July.
  8. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  9. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
  10. Gilson, Stuart C., 1989. "Management turnover and financial distress," Journal of Financial Economics, Elsevier, vol. 25(2), pages 241-262, December.
  11. Warner, Jerold B. & Watts, Ross L. & Wruck, Karen H., 1988. "Stock prices and top management changes," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 461-492, January.
  12. repec:cep:stitep:/1996/303 is not listed on IDEAS
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