Economics of leadership and hierarchy

Junjie Zhou

Games and Economic Behavior, 2016, vol. 95, issue C, 88-106

Abstract: This paper explores leadership within hierarchical organizations. For each hierarchy, I consider a dynamic signaling game in which each player observes only the actions of his direct superiors before choosing his action. At the top of the hierarchy are the leaders, who learn the state from nature. The hierarchy controls the flow of information and the timing of the game, and determines the equilibrium output and welfare. I show that the welfare-optimal hierarchy is the chain, because it maximizes the incentive of players to “lead by example” for their subordinates. The chain remains optimal even in the presence of verifiable or unverifiable costly information acquisition by the leaders.

Keywords: Organization design; Hierarchy; Leadership; Free-riding; Dynamic signaling; Lead by example (search for similar items in EconPapers)
JEL-codes: D21 D29 D82 L29 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:95:y:2016:i:c:p:88-106

DOI: 10.1016/j.geb.2015.12.012

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