Working Paper: NBER ID: w7388
Authors: Oliver Hart; John Moore
Abstract: We develop a model of hierarchies based on the allocation of authority. A firm's owners have ultimate authority over a firm's decisions, but they have limited time or capacity to exercise this authority. Hence owners must delegate authority to subordinates. However, these subordinates also have limited time or capacity and so further delegation must occur. We analyze the optimal chain of command given that different agents have different tasks: some agents are engaged in coordination and others in specialization. Our theory throws light on the nature of hierarchy, the optimal degree of decentralization, and the boundaries of the firm.
Keywords: No keywords provided
JEL Codes: D2; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| breadth of tasks (Y80) | hierarchical position (L22) |
| hierarchical position (L22) | decision-making efficiency (D91) |
| coordination gains (C72) | organization structure (L22) |
| coordination gains minimal (C72) | split into independent firms (L22) |