Authority, Control, and the Distribution of Earnings

Sherwin Rosen

Bell Journal of Economics, 1982, vol. 13, issue 2, 311-323

Abstract: The distributions of firm size, span of control, and managerial incomes are modeled as the joint outcome of market assignments of personnel to hierarchical positions. Assigning persons of superior talent to top positions increases productivity by more than the increments of their abilities because greater talent filters through the entire firm by a recursive chain of command technology. These multiplicative effects support enormous rewards for top level management in large organizations. Also, superior managers control more than proportionately larger firms. Consequently, the distributions of reward and firm size are skewed relative to the distribution of abilities.

Date: 1982
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