Working Paper: CEPR ID: DP2429
Authors: Guido Friebel; Michael Raith
Abstract: If managers and their subordinates had the same basic qualifications, organizations could benefit from replacing unproductive superiors with more productive subordinates. This threat of being replaced, however, could give rise to strategic recruiting: Unproductive superiors might deliberately recruit unproductive subordinates in order to protect themselves, or engage in other forms of abuse of authority which could be harmful to the organization. We show that the common practice of requiring intra-firm communication to pass through a chain of command can be an effective way to secure the incentives for superiors to recruit the best possible subordinates. We discuss some alternative instruments and general implications of our analysis for organizational design.
Keywords: hierarchies; strategic recruiting; internal labour markets; abuse of authority; chain of command
JEL Codes: D82; J41; M12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| enforcement of a chain of command (D73) | incentives to recruit productive subordinates (M54) |
| incentives to recruit productive subordinates (M54) | hiring more capable individuals (M51) |
| degree of openness of communication (L96) | likelihood of identifying unproductive managers (M54) |
| degree of openness of communication (L96) | discouragement from hiring productive subordinates (M54) |
| optimal communication structure (L22) | balance between openness and enforcement of chain of command (D73) |
| level of control exerted by top management over recruitment decisions (M51) | optimal communication structure (L22) |
| existing wage structure (J31) | optimal communication structure (L22) |