Working Paper: CEPR ID: DP3945
Authors: Walter Novaes; Luigi Zingales
Abstract: Firms that maintain no formal record of actions and events would hardly be considered well managed. Yet, organizations that require the recording of actions and the filing of reports are often labeled ?bureaucratic? and inefficient. This Paper argues that the thin line between efficient management practices and inefficient bureaucracy is crossed to curb managerial agency costs in a multi-layer hierarchy. The model predicts that bureaucracy increases with the frequency of managerial turnover, and it establishes a link between bureaucracy, incentive schemes, and leverage in a cross-section of firms.
Keywords: bureaucracy; organizations; turnover
JEL Codes: D20; G30; L20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| managerial turnover (M51) | bureaucracy (D73) |
| bureaucracy (D73) | incentive schemes (J33) |
| managerial turnover (M51) | managerial agency costs (M12) |
| managerial turnover (M51) | performance measures (C52) |
| excessive degree of informality in organizational design (L22) | inefficiencies (D61) |
| excessive degree of informality in organizational design (L22) | disruption of incentive structure (D47) |