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Organizations with Power-Hungry Agents

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  • Dessein, Wouter
  • Holden, Richard

Abstract

We analyze a model of hierarchies in organizations where neither decisions themselves nor the delegation of decisions are contractible, and where power-hungry agents derive a private benefit from making decisions. Two distinct agency problems arise and interact: Subordinates take more biased decisions (which favors adding more hierarchical layers), but uninformed superiors may fail to delegate (which favors removing layers). A designer may remove intermediate layers of the hierarchy (eliminate middle managers) or de-integrate an organization by removing top layers (eliminate top managers). We show that stronger preferences for power result in smaller, more de-integrated hierarchies. Our key insight is that hoarding of decision rights is especially severe at the top of the hierarchy.

Suggested Citation

  • Dessein, Wouter & Holden, Richard, 2019. "Organizations with Power-Hungry Agents," CEPR Discussion Papers 13526, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13526
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    Cited by:

    1. Alessandro De Chiara & Florian Engl & Holger Herz & Ester Manna, 2022. "Control Aversion in Hierarchies," CESifo Working Paper Series 9779, CESifo.
    2. Pikulina, Elena S. & Tergiman, Chloe, 2020. "Preferences for power," Journal of Public Economics, Elsevier, vol. 185(C).
    3. Klockmann, Victor & von Schenk, Alicia & von Siemens, Ferdinand A., 2021. "Division of labor and the organization of knowledge in production: A laboratory experiment," Games and Economic Behavior, Elsevier, vol. 130(C), pages 196-210.
    4. Dell'Era, Michele, 2019. "Talking to Influence and the Consulting Paradox," MPRA Paper 93803, University Library of Munich, Germany.
    5. Cameron Gordon, 2022. "The Information Bottleneck Principle in Corporate Hierarchies," Papers 2210.14861, arXiv.org.

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    More about this item

    Keywords

    Hierarchies; Preferences for power; Delegation; Organization design;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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