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Distributional Conflict in Organisations

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  • Inderst, Roman
  • Mueller, Holger M
  • Wärneryd, Karl

Abstract

Hierarchy can function as an instrument to channel influence activities or power struggles in organizations. Contrary to what has frequently been argued, we show that multi-divisional organizations may involve lower influence costs than single-tier organizations, even though they offer more scope for organizational conflict and have more executives that can be influenced. These benefits derive from two effects. First, part of the conflict in multi-divisional organizations takes place on the division level, where a small number of agents fight over only a fraction of the overall prize. Second, by grouping agents into common divisions, multi-divisional organizations create free-rider problems in rent seeking. We apply our framework to divestitures and the transition from the U- to the M-form by US corporations in the 1920s.

Suggested Citation

  • Inderst, Roman & Mueller, Holger M & Wärneryd, Karl, 2002. "Distributional Conflict in Organisations," CEPR Discussion Papers 3315, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3315
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.
    2. Bös, Dieter, 2002. "Contests Among Bureaucrats," Bonn Econ Discussion Papers 27/2002, University of Bonn, Bonn Graduate School of Economics (BGSE).
    3. van Besouw, Bram & Ansink, Erik & van Bavel, Bas, 2016. "The economics of violence in natural states," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PA), pages 139-156.
    4. Wärneryd, Karl, 2014. "Rent Seeking and Organizational Structure," SSE/EFI Working Paper Series in Economics and Finance 749, Stockholm School of Economics.
    5. Kenan Huremovic, 2015. "A Noncooperative Model of Contest Network Formation," AMSE Working Papers 1521, Aix-Marseille School of Economics, France, revised Feb 2015.
    6. Wärneryd, Karl, 2013. "Common-value contests with asymmetric information," Economics Letters, Elsevier, vol. 120(3), pages 525-527.
    7. Kräkel, Matthias, 2006. "Firm Size, Economic Situation and Influence Activities," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 167, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    8. Oliver Gürtler, 2010. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(4), pages 359-377, October.
    9. McBride, Michael & Skaperdas, Stergios & Tsai, Pi-Han, 2018. "Why go to court? Bargaining failure under the shadow of trial with complete information," European Journal of Political Economy, Elsevier, vol. 55(C), pages 151-168.
    10. Renucci, Antoine, 2008. "Access to financing, rents, and organization of the firm," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 337-346, September.
    11. Johannes Münster & Klaas Staal, 2012. "How organizational structure can reduce rent-seeking," Public Choice, Springer, vol. 150(3), pages 579-594, March.
    12. Kräkel, Matthias, 2006. "On the “Adverse Selection” of Organizations," IZA Discussion Papers 2396, Institute of Labor Economics (IZA).
    13. Antoine Renucci, 2008. "Access to financing, rents, and organization of the firm," Post-Print halshs-00365983, HAL.
    14. Sina Risse, 2011. "Two-stage group rent-seeking with negatively interdependent preferences," Public Choice, Springer, vol. 147(3), pages 259-276, June.
    15. Gil S. Epstein & Ira N. Gang, 2016. "Taxation, social protection, and governance decentralization," WIDER Working Paper Series 101, World Institute for Development Economic Research (UNU-WIDER).
    16. Hausken, Kjell, 2012. "On the inappropriateness of collective rent seeking analysis when agents exert within-group and between-group efforts," Economics Letters, Elsevier, vol. 116(3), pages 504-507.
    17. repec:elg:eechap:15325_6 is not listed on IDEAS
    18. repec:elg:eechap:15325_7 is not listed on IDEAS
    19. Aner Sela, 2002. "Contest Architecture (jointly with Benny Moldovanu)," Theory workshop papers 357966000000000088, UCLA Department of Economics.
    20. Johannes Münster, 2009. "Group contest success functions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 345-357, November.

    More about this item

    Keywords

    conflict; hierarchy; influence activities; U-form versus M-form;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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