Incentives, Information, and Organizational Form
February 6, 1999 We model an organization as a hierarchy of managers erected on top of a technology (here consisting of a collection of plants). In our framework, the role of a manager is to take steps to reduce the adverse consequences of shocks that affect the plants beneath him. We argue that different organizational forms give rise to different information about managers' performance and therefore differ according to how effective incentives can be in encouraging a good performance. In particular, we show that, under certain assumptions, the M-form (multi-divisional form) is likely to provide better incentives than the U-form (unitary form) because it promotes yardstick competition (i.e., relative performance evaluation) more effectively. We conclude by presenting evidence that the assumptions on which this comparison rests are satisfied for Chinese data.
|Date of creation:||06 Feb 1999|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www-econ.stanford.edu/econ/workp/
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.:
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-64, October.
- Yingyi Qian & Gerard Roland & Chenggang Xu, 1999.
"Coordinating Changes in M-form and U-form Organizations,"
William Davidson Institute Working Papers Series
284, William Davidson Institute at the University of Michigan.
- Gerard Roland & Chenggang Xu, 2000. "Coordinating Changes in M-Form and U-Form Organizations," Econometric Society World Congress 2000 Contributed Papers 0780, Econometric Society.
- Bengt Holmstrom, 1982.
"Moral Hazard in Teams,"
Bell Journal of Economics,
The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
- Maskin, Eric & Qian, Yingyi & Xu, Chenggang, 2000.
"Incentives, Information, and Organizational Form,"
Review of Economic Studies,
Wiley Blackwell, vol. 67(2), pages 359-78, April.
- Eric Maskin & Yingyi Qian & Chenggang Xu, 1997. "Incentives, Information, and Organizational Form," Working Papers 97034, Stanford University, Department of Economics.
- Eric Maskin & Yingyi Qian & Chenggang Xu, 1999. "Incentives, Information, and Organizational Form," Working Papers 99009, Stanford University, Department of Economics.
- Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
- Bolton, Patrick & Farrell, Joseph, 1990. "Decentralization, Duplication, and Delay," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 803-26, August.
- Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
- Aoki, Masahiko, 1986.
"Horizontal vs. Vertical Information Structure of the Firm,"
American Economic Review,
American Economic Association, vol. 76(5), pages 971-83, December.
- Masahiko Aoki, 2013. "Horizontal vs. Vertical Information Structure of the Firm," Chapters, in: Comparative Institutional Analysis, chapter 5, pages 57-58 Edward Elgar.
- Kim, Son Ku, 1995. "Efficiency of an Information System in an Agency Model," Econometrica, Econometric Society, vol. 63(1), pages 89-102, January.
- Aghion, Philippe & Tirole, Jean, 1995. "Some implications of growth for organizational form and ownership structure," European Economic Review, Elsevier, vol. 39(3-4), pages 440-455, April.
- Jacques Cremer, 1980. "A Partial Theory of the Optimal Organization of a Bureaucracy," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 683-693, Autumn.
When requesting a correction, please mention this item's handle: RePEc:wop:stanec:99009. 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: (Thomas Krichel)
If references are entirely missing, you can add them using this form.