Corporate Downsizing to Rebuild Team Spirit

Antonio Cabrales and Antoni Calvó-Armengol

No 183, Working Papers from Barcelona School of Economics

Abstract: We propose a new theory for downsizing, based on strategic reasons, rather than technological ones. A crisis may lead to a decrease in the willingness to cooperate in an organization, and therefore to a bad equilibrium. A consensual downsizing episode may signal credibly that survivors are willing to cooperate, and thus, it may be optimal and efficiency-enhancing, as the empirical evidence suggests. A variation of the same mechanism leads to "efficient" upsizing.

Date: 2003-07
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Working Paper: Corporate Downsizing to Rebuild Team Spirit (2007)
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