On the Optimality of Multi-tier Hierarchies: Coordination versus Motivation

Chongwoo Choe and Shingo Ishiguro

The Journal of Law, Economics, and Organization, 2012, vol. 28, issue 3, 486-517

Abstract: We study internal organization of a firm that comprises a CEO and two division managers. The two key ingredients of our model are externalities among divisions' projects that may require coordination and effort incentives for the CEO and the two division managers. Depending on how decision authority over each project is allocated, we compare various organizational structures including centralization, different forms of partial and full delegation, and hierarchical delegation. We identify conditions under which different organizational structures can be Pareto ranked. We also discuss the optimal pattern of hierarchical delegation and offer various examples of organizational restructuring in large corporations that our theory can shed light on. The Author 2011. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10.1093/jleo/ewr022 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:28:y:2012:i:3:p:486-517

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Journal of Law, Economics, and Organization is currently edited by Andrea Prat

More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().