IDEAS home Printed from https://ideas.repec.org/p/gro/rugccs/200011.html
   My bibliography  Save this paper

Delegation of authority, managerial initiatives, and the design of divisional structure

Author

Listed:
  • Riyanto, Yohanes E.

    (Groningen University)

Abstract

This paper provides a rationale for a firm to adopt either an integrated or a separated divisional structure, which is based on the interplay between the structure of authority and the costs and benefits of integration vis-a-vis separation. We use the framework of Aghion and Tirole (1997) to explain the structure of authority. This framework captures the notion of managerial initiatives. It shows that monitoring by the head office decreases divisional managers' effort levels. We incoporate this framework into the analysis of costs and benefits of integrating or separating divisions. Integration will be beneficial for the head office if it generates synergy gains. The larger the synergy gains are, the more appealing integration will be. Consequently, the head-office's incentive to monitor increases. Due to a more intense monitoring, managers exert lower effort levels. For managers, integration entails costs and benefits. If the benefits outweigh the costs, managers will be motivated to exert high effort levels in an integrated divisional structure. The optimality of integrating or separating divisions will then be determined by the trade-off between synergy gains and the managerial effort elicitation

Suggested Citation

  • Riyanto, Yohanes E., 2000. "Delegation of authority, managerial initiatives, and the design of divisional structure," CCSO Working Papers 200011, University of Groningen, CCSO Centre for Economic Research.
  • Handle: RePEc:gro:rugccs:200011
    as

    Download full text from publisher

    File URL: http://irs.ub.rug.nl/ppn/241228506
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Jean Tirole, 1996. "A Theory of Collective Reputations (with applications to the persistence of corruption and to firm quality)," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 1-22.
    3. Jean Tirole, 1988. "The Multicontract Organization," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 459-466, August.
    4. Philippe Aghion & Abhijit Banerjee & Thomas Piketty, 1999. "Dualism and Macroeconomic Volatility," The Quarterly Journal of Economics, Oxford University Press, pages 1359-1397.
    5. Holmstrom, Bengt & Tirole, Jean, 1991. "Transfer Pricing and Organizational Form," Journal of Law, Economics, and Organization, Oxford University Press, pages 201-228.
    6. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1999. "Informal Authority in Organizations," Journal of Law, Economics, and Organization, Oxford University Press, pages 56-73.
    7. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    8. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, pages 691-719.
    9. de Bijl, P.W.J., 1996. "Essays in industrial organization and management strategy," Other publications TiSEM 702f75c5-9ca8-4150-ba8b-e, Tilburg University, School of Economics and Management.
    10. Trond E. Olsen, 1996. "Agency Costs and the Limits of Integration," RAND Journal of Economics, The RAND Corporation, pages 479-501.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Te Bao & Yongqin Wang, 2009. "Incomplete Contract and Divisional Structures," Tinbergen Institute Discussion Papers 09-075/1, Tinbergen Institute.
    2. Te Bao & Yongqin Wang, 2012. "Incomplete contract, bargaining and optimal divisional structure," Journal of Economics, Springer, pages 81-96.
    3. Te Bao & Yongqin Wang, 2009. "Incomplete Contract and Divisional Structures," Tinbergen Institute Discussion Papers 09-075/1, Tinbergen Institute.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gro:rugccs:200011. 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: (Hanneke Tamling). General contact details of provider: http://edirc.repec.org/data/ferugnl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.