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Corporate Downsizing to Rebuild Team Spirit

Antonio Cabrales () and Antoni Calvó-Armengol

No 201084, Working Papers from Fundacion BBVA / BBVA Foundation

Abstract: In this working paper, we propose a new theory fordownsizing, 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 maybe optimal and efficiency-enhancing (for the individuals remaining in the organization), as the empirical evidence suggests. A variation of the same mechanism leads to efficient upsizing.

Keywords: Firm downsizing; coordination mechanism; firm size; forward induction; scapegoats. (search for similar items in EconPapers)
Pages: 37
Date: 2007-07
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