Why Hierarchy? Communication and Information Acquisition in Organizations
In most firms, if not all, workers are divided asymmetrically in terms of authority and responsibility. In this paper, we view the asymmetric allocations of authority and responsibility as essential features of hierarchy and examine why hierarchies often prevail in organizations from that perspective. The focus of attention is on the tradeoff between costly information acquisition and costless communication. When the agency problem concerning information acquisition is sufficiently severe, the contractual arrangement which allocates responsibility asymmetrically often emerges as the optimal organizational form, which gives rise to the chain of command pertaining to hierarchical organizations. This explains why hierarchies often prevail in firms since a relatively fixed group of members must confront with new problems and come up with solutions on the day-to-day basis, and hence the agency problem is an issue to be reckoned with.
|Date of creation:||Aug 2009|
|Date of revision:|
|Contact details of provider:|| Postal: 6-1 Mihogaoka, Ibaraki, Osaka 567-0047|
Web page: http://www.iser.osaka-u.ac.jp/index-e.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gilat Levy, 2005.
"Decision making in committees: transparency, reputation and voting rules,"
LSE Research Online Documents on Economics
543, London School of Economics and Political Science, LSE Library.
- Gilat Levy, 2007. "Decision Making in Committees: Transparency, Reputation, and Voting Rules," American Economic Review, American Economic Association, vol. 97(1), pages 150-168, March.
- Gilat Levy, 2007. "Decision making in committees: transparency, reputation, and voting rules," LSE Research Online Documents on Economics 3697, London School of Economics and Political Science, LSE Library.
- Raghuram G. Rajan & Luigi Zingales, 2000.
"The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms,"
NBER Working Papers
7546, National Bureau of Economic Research, Inc.
- Raghuram G. Rajan & Luigi Zingales, 2001. "The Firm as a Dedicated Hierarchy: A Theory of the Origins and Growth of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 805-851.
- Krishna, V. & Morgan, J., 1999.
"A Model of Expertise,"
206, Princeton, Woodrow Wilson School - Public and International Affairs.
- Wouter Dessein, 2000.
"Authority and Communication in Organizations,"
Econometric Society World Congress 2000 Contributed Papers
1747, Econometric Society.
- repec:dpr:wpaper:0746 is not listed on IDEAS
- Philippe Aghion & Jean Tirole, 1994.
"Formal and Real Authority in Organizations,"
95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
- Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
- Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
- Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
- Junichiro Ishida & Takashi Shimizu, 2016.
"Cheap talk with an informed receiver,"
Economic Theory Bulletin,
Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(1), pages 61-72, April.
- 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.
- Hao Li, 2001. "A Theory of Conservatism," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 617-636, June.
When requesting a correction, please mention this item's handle: RePEc:dpr:wpaper:0751. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fumiko Matsumoto)
If references are entirely missing, you can add them using this form.