Incentives, Information, and Organizational Form

Eric S. Maskin, Yingyi Qian and Chenggang Xu

Working Papers from Stanford University, Department of Economics

Abstract: 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.

New Economics Papers: this item is included in nep-cdm, nep-fin, nep-ind and nep-mic
Date: Written 1999-02-06
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Related works:
Working Paper: Incentives, Information, and Organizational Form (1997)
Journal Article: Incentives, Information, and Organizational Form (2000)
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