Organizations with Power-Hungry Agents

Wouter Dessein and Richard Holden

No 13526, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze a model of hierarchies in organizations where neither decisions themselves nor the delegation of decisions are contractible, and where power-hungry agents derive a private benefit from making decisions. Two distinct agency problems arise and interact: Subordinates take more biased decisions (which favors adding more hierarchical layers), but uninformed superiors may fail to delegate (which favors removing layers). A designer may remove intermediate layers of the hierarchy (eliminate middle managers) or de-integrate an organization by removing top layers (eliminate top managers). We show that stronger preferences for power result in smaller, more de-integrated hierarchies. Our key insight is that hoarding of decision rights is especially severe at the top of the hierarchy.

Keywords: Hierarchies; Preferences for power; Delegation; Organization design (search for similar items in EconPapers)
JEL-codes: D2 L2 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-cta and nep-mic
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Citations: View citations in EconPapers (4)

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Journal Article: Organizations with Power-Hungry Agents (2022)
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