the determinants of the management hierarchy evidence from italian plants abstract the paper aims to test some of the predictions of economic theory on the organizational architecture by looking at the relation between the depth of the management hierarchy of plants and plant and industry specific variables i test this relation through the estimates of an ordered logit econometric model on a sample of 438 italian manufacturing plants the findings show that the plant size the characteristics i e vintage and extent of use of the production and communication technology in use the plant s ownership status i e state versus private ownership and differences in the nationality of firms to which plants belong figure prominently in explaining the complexity of a plant s organization

economics of leadership and hierarchy this paper explores leadership within hierarchical organizations for each hierarchy i consider a dynamic signaling game in which each player observes only the actions of his direct superiors before choosing his action at the top of the hierarchy are the leaders who learn the state from nature the hierarchy controls the flow of information and the timing of the game and determines the equilibrium output and welfare i show that the welfare optimal hierarchy is the chain because it maximizes the incentive of players to lead by example for their subordinates the chain remains optimal even in the presence of verifiable or unverifiable costly information acquisition by the leaders

multi tasking and inequity aversion in the linear exponential normal moral hazard model this paper analyzes the impact of wage comparisons among inequity averse agents on optimal incentive intensities in a linear exponential normal moral hazard model with multi tasking we consider individual and team production tasks that differ in that only individual production causes wage inequality if the tasks are substitutes in the agents effort cost functions the principal might want to balance incentives and reduce the agents overall inequality exposure we show that team production incentives can then be muted below the level that results from noisy measurement and risk aversion alone even though team production does not cause wage inequality

learning about a new technology pineapple in ghana this paper investigates the role of social learning in the diffusion of a new agri cultural technology in ghana we use unique data on farmers communication patterns to define each individual s information neighborhood conditional on many potentially confounding variables we find evidence that farmers adjust their inputs to align with those of their information neighbors who were surpris ingly successful in previous periods the relationship of these input adjustments to experience further indicates the presence of social learning in addition applying the same method to input choices for another crop of known technol ogy correctly indicates an absence of social learning effects jel d83 013 033 q16

hierarchical organization and incentives abstract we study decentralization in public decision making as the possibility for local authorities to sign incentive contracts with local agents in a context of asymmetric information we first review some theoretical arguments put forward for the optimality of decentralized structures we then present a model of organization of incentive policy in the eu context where national authorities have better information on their agents but less bargaining power than central authorities at the community level we show the complementarities between both levels of regulation

the influence of information technology on the use of loosely coupled organizational forms an industry level analysis information technology it enhances coordination both within the firm and between the firm and its external partners consequently it investment can promote both loosely and tightly coupled organizational forms indeed in some industries widespread investment in it is associated with high levels of disaggregation in other industries this is not the case we argue that the specific influence of it on firm boundaries depends on the broader industrial context we investigate conditions whereby it investments enable industries to be more loosely coupled through alliance formation and the use of contingent workers we use transaction cost and modular systems theory to ground our theoretical development the extent to which industrywide it investment is associated with loosely coupled organizational forms depends on 1 limited asset specificity because of industry standards 2 the level of industry uncertainty resulting from technological change and 3 the overall complexity of the industry in terms of diverse inputs specifically when industry standards exist it investment leads to greater use of both alliances and contingent workers it investment has a stronger positive relationship with the use of contingent workers when levels of technological change are low as compared to when levels of technological change are high when there are high levels of input diversity and industry standards exist it investment led to an increased use of contingent workers our analyses provides a more refined view of it influence on firm boundaries

estimating the effect of hierarchies on information use theory suggests that greater hierarchical distance between a subordinate and his boss makes it more di cult to share abstract and subjective information in decision making a novel data set put together from credit dossiers of large corporate loan applicants enables us to observe the information collected by loan o cers and also how it is used by the ultimate loan approving o cer we flnd that greater hierarchical geographical distance between the information collecting agent and the loan approving o cer leads to less reliance on subjective information and more on objective information by exploiting non linearities in the assignment rules that determine an applicant s hierarchical distance and using information collecting agent flxed efiects we show that our result cannot be driven by endogenous assignment of applicants we also flnd that higher frequency of interactions between the information collecting agent and loan approving o cer both over time and through geographical proximity helps mitigate the efiects of hierarchical distance on information use our results show that hierarchical distance in uences information use and highlights the importance of human touch in communication

optimal leniency and the organization design of group crime abstract we study a simple law enforcement model where the organizational structure of a criminal group is endogenous and determined jointly with the amnesty granted to whistleblowers we allow criminals to choose between a horizontal partnership and a vertical hierarchical organization structure and we study how this choice affects the optimal leniency granted by a benevolent legislator whose aim is to minimize crime we show that the optimal amnesty with an endogenous organizational choice is less lenient than that granted when the policy targets vertical organizations only in the equilibrium partnerships coexist with vertical organizations

costly communication and incentives this paper discusses the introduction of incentive considerations in a model of costly communication it starts from a simplified version of a team theoretic model due to dessein and santos 2003 which relates the design of an organization to its adaptiveness to environmental uncertainty incentives are introduced in this setting following an approach developed by dewatripont and tirole 2005 doing so enriches the analysis by allowing for the coexistence of various forms of communication in particular cheap talk versus costly communication 2006 by the european economic association

centralized bargaining and reorganized work are they compatible the paper examines the implications for wage bargaining of an important aspect of the ongoing reorganization of work the move from occupational specialization toward multi tasking the analysis shows how on account of such reorganization centralized bargaining becomes increasingly ine cient and detrimental to rms pro t opportunities since it prevents rms from o ering their employees adequate incentives to perform the appropriate mix of tasks the paper also shows how centralized bargaining inhibits rms from using wages to induce workers to learn how to use their experience from one set of tasks to enhance their performance at other tasks in this way the paper may also help explain the increasing resistance to centralized bargaining in various advanced market economies 2001 elsevier science b v all rights reserved

real time decentralized information processing as a model of organizations with boundedly rational agents this paper studies the properties of real time decentralized information processing as a model of human information processing in organizations real time decentralized processingwhich models the computation of decision rules in a temporal decision problem by members of an organization captures both the cost of computation in terms of the members time and the constraints imposed by computational delay on the use of recent information unlike a batch processing model it has no single measure of delay because decisions are computed from data of heterogeneous lags furthermore decentralization does not unambiguously reduce delay because processing a message precludes processing current data 1 real time decentralized information processing

coordination and delay in hierarchies this article studies hierarchical organizations where concerns for fast execution are important and employees must be coordinated to avoid wasteful duplications of effort simple conditions are provided for the time spent on coordinating subordinates to be increasing and the span of control to be decreasing as one goes up the hierarchy with equalities holding if delay is all that matters when returns to specialization are substantial the span of control also tends to widen and the hierarchy to flatten as urgency increases the model suggests that concerns for fast execution may be key in explaining recent trends toward decentralization and delayering in firms

team theory garbage cans and real organizations some history and prospects of economic research on decision making in organizations this essay attempts to articulate and advance a long term agenda for organizational economics the essay begins with a general discussion of four specific items on this agenda and then moves to a more specific discussion of decision making in organizations beginning with two polar opposite conceptions team theory and garbage cans and then describing several recent economic models part of the rationale for writing this essay is that this agenda has both substantive and methodological commonalities with the work of james march copyright 2003 oxford university press

exit option in hierarchical agency abstract we explain why organizations that limit the voice of their agents can benefit from granting them an exit option we study a hierarchy with a principal a productive supervisor and an agent communication is imperfect in that only the supervisor can communicate with the principal while the agent has no direct voice to the principal we show that the principal is better off if she grants the agent the option to walk away from the contract by doing so the principal is implicitly giving a veto power to the agent this in turn restricts the manipulation of report by the supervisor thus the exit option can be interpreted as a remedy for limits on communication our finding contrasts to the traditional result from the contract theory literature that the exit option reduces the principal s welfare while protecting the agent our result is robust to the case of collusion between the supervisor and the agent we also examine the optimal exit option i e whether exit should entail a payment to or from the agent

auditing and property rights third party auditprovides incentives to an agent whose actions affect the value of an asset when audit intensity and outcome are unverifiable we show that with interim participation constraints the optimal mechanism may use only the auditor s report disregarding the agent s information furthermore the auditor obtains the asset and the agent a monetary compensation when a high asset value is reported this suggests regulating renewable resources or utility networks by giving entrants the option to buy the right to use the asset at a predetermined price and financially rewarding incumbents for good performance

multistage capital budgeting with delayed consumption of slack capital budgeting frequently involves multiple stages at which firms can continue or abandon ongoing projects in this paper we study a project requiring two stages of investment failure to fund stage 1 of the investment precludes investment in stage 2 whereas failure to fund stage 2 results in early termination in contrast to the existing literature we assume that the firm can limit the manager s informational rents with the early termination of the project in this setting we find that the firm optimally commits to a capital allocation scheme whereby it forgoes positive net present value npv projects at stage 1 capital rationing whereas at stage 2 depending on the manager s previous report it sometimes implements projects with a negative continuation npv but in other situations forgoes implementing projects with positive continuation npvs this paper was accepted by mary barth accounting

face to face communication in organizations communication is integral to organizations and yet field evidence on the relation between communication and worker productivity remains scarce we argue that a core role of communication is to transmit information that helps co workers do their job better we build a simple model in which workers choose the amount of communication by trading off this benefit against the time cost incurred by the sender and use it to derive a set of empirical predictions we then exploit a natural experiment in an organization where problems arrive and must be sequentially dealt with by two workers for exogenous reasons the first worker can sometimes communicate face to face with their colleague consistently with the predictions of our model we find that 1 the second worker works faster at the cost of the first worker having less time to deal with incoming problems when face to face communication is possible 2 this effect is stronger when the second worker is busier and for homogenous and closely located teams and 3 the career incentives of workers determine how much they communicate with their colleagues we also find that workers partially internalise social outcomes in their communication decisions our findings illustrate how workers in teams adjust the amount of mutual communication to its costs and benefits

an agency theory of the division of managerial labor should responsibility for strategic planning and execution be assigned to the same manager should a firm have a chief operating officer with responsibilities distinct from those of the chief executive officer how does the division of labor affect managerial opportunism this paper uses a formal agency theoretic model to address these questions and present a new theory of the division of managerial labor building on penrose s typology penrose e 2009 the theory of the growth of the firm 4th ed blackwell oxford uk the theory identifies when to assign i entrepreneurial services which relate to strategic planning and the acquisition of resources and ii managerial services which relate to execution to the same generalist manager rather than to different specialists the analysis reveals the critical importance of separability i e whether a supervisor can separately observe the outcomes of entrepreneurial and managerial services if managers and their supervisor have symmetric information about separability hiring a generalist dominates because managerial services which are easier to assess reduce the scope for opportunism associated with entrepreneurial services which are harder to assess conversely if managers have better information regarding separability and the probability of separability is low hiring specialists dominates because hiring a generalist allows the potential for opportunism associated with entrepreneurial services to contaminate the provision of managerial services even so the benefits of hiring a generalist may be restored if the services are sequenced appropriately an implication of such sequencing is that a firm will grow in fits and starts giving rise to a penrose effect even if labor market frictions do not impede the assimilation of new managers

decentralization hierarchies and incentives a mechanism design perspective separation of ownership from management multidivisional firm organizations delegation of production decisions to worker teams delegation of pricing and advertising decisions to retail franchisers reliance on intermediaries in trade or finance and distribution of regulatory authority across different agencies represent examples of organizations that delegate and distribute decision making authority instead of centralizing it this paper reviews literature on costs and benefits of delegated decision making in hierarchical organizations or contracting networks with regard to problems of incentives and coordination it starts by describing incentive and coordination costs of delegation in simple canonical examples of hierarchies where both information and incentives of different decisionmakers differ one class of models pertain to contexts where the classical revelation principle applies i e where costs of contractual complexity information processing or communication are absent agents do not collude and the mechanism designer can commit to the mechanism delegation may conceivably entail a loss of control and coordination arising from the divergence of information and incentives sufficient and necessary conditions for this loss to be mitigated entirely include risk neutrality top down contracting and monitoring of transfers or production assignments between subordinates the next class of models introduces communication costs that restrict the performance of centralized arrangements relative to delegation owing to a resulting loss of flexibility which has to be traded off against possible control losses of delegation finally consequences of collusion among agents is discussed which typically enlarge the range of circumstances under which delegation can attain optimal second best outcomes the paper concludes with a discussion of the relevance of this theoretical literature to recently emerging empirical studies of industrial organizations where delegated decision making plays an important role adoption of innovative human resource management practices new information technologies and retail franchising

on the design of hierarchies coordination versus specialization we consider an economy that has to decide how assets are to be used agents have ideas but these ideas conflict we suppose that decision making authority is determined by hierarchy each asset ha

the firm as a dedicated hierarchy a theory of the origins and growth of firms in the formative stages of their businesses entrepreneurs have to provide incentives for employees to protect rather than steal the source of organizational rents we study how the entrepreneur s response to this problem determines the organization s internal structure growth and its eventual size large steep hierarchies will predominate in physical capital intensive industries and will have seniority based promotion policies by contrast e at hierarchies will prevail in human capital intensive industries and will have up or out promotion systems furthermore e at hierarchies will have more distinctive technologies or cultures than steep hierarchies the model points to some essential differences between organized hierarchies and markets at the root of most enterprises generating economic surplus is an entrepreneur with a unique critical resource such as an idea good customer relationships a new tool or superior management technique a fundamental problem of entrepreneurship is how to enlist the cooperation of the many agents necessary for production without ceding to them too much of the surplus generated by the enterprise the risk of being expropriated however is always inherent in production in particular the entrepreneur has to give her employees whom we call managers close proximity or access to the critical resource for them to learn to produce effectively for example a manager has to understand the idea be in contact with the key customers and suppliers or even learn the entrepreneur s unique managerial techniques in order to work effectively but access also gives the manager the opportunity to expropriate this critical resource and compete against the entrepreneur managers may steal the idea walk away with clients or mimic the entrepreneur s management style and start up a rival concern the greater the access a manager has the more he can appropriate and the more effectively he can compete this paper explores the role of organizational design in

contracts entrepreneurs market creation and judgement the contemporary mainstream theory of the firm in perspective this survey gives an overview of the theory of the firm as it is formulated within the contemporary mainstream of economics two groupings of theories are briefly discussed principal agent and incomplete contract models next three of the most recent contributions regarding firms are considered the reference point approach is looked at first followed by a discussion of spulber s book the theory of the firm last we consider the entrepreneurial judgement perspective

the repository of soft information within bank organizations we examine who is the repository of soft information within bank organizations inconsistent with the conventional view of loan officers as the sole repository we find that branch managers have the most soft information we also find the repository at a higher hierarchical level at smaller banks furthermore our evidence suggests that branch managers themselves actively collect soft information especially at smaller banks these findings suggest the need for a more nuanced view beyond the conventional emphasis on loan officers and call for studies on the equilibrium design of the collection processing and use of soft information within bank organizations

mixups in the warehouse centralized and decentralized multi plant firms lynn hunnicutt i introduction all firms receive information and use it to make decisions multi plant firms receive information at scattered locations and must choose how this knowledge will flow and how decisions will be made the firm might have a single decision maker which i call centralization or it might allow each location to make decisions based on any information available to them a situation i call decentralization this article considers issues affecting the choice between one and several decision makers first through a simple model of a multi plant firm and then through two case studies that illustrate many of the model s conclusions the model assumes and the case studies show that a single decision maker often has trouble handling all information available from widely scattered locations mixups shipping the wrong bundle to an outlet are an unavoidable consequence of having a single boss 1 when the firm has more than one decision maker mixups are avoided but overhead costs are larger one of the model s key results which is confirmed by the case studies is that the centralized firm often standardizes as a way to simplify the problem it faces that is it ships similar and less than optimal bundles to all outlets even though resizing or reforming bundles could increase the profitability of any one outlet there is a large literature in which delay and its minimization is the driving force behind organizational form radner 1993 van zandt and radner 1995 and van zandt 1999 analyze the time required to process a batch of information under different organizational structures bolton and dewatripont 1994 extend radner 1993 by explicitly including both processing and communication delay and differentiating between the two types the firm minimizes delay when agents specialize in processing particular types of information specialization also occurs in the model of geanakoplos and milgrom 1991 in which the firm may dictate which bits of information managers attend to the firm s problem then is to coordinate the different bits of information its managers hold communication delay is at issue in marschak and reichelstein 1998 who relate organizational structure to the size of communication costs and message complexity the issue of time to transmit information is also considered in govindarajan 1986 who notes that communication delay in a rapidly changing environment or in a firm where coordination is crucial may favor centralization a key assumption of these models is that no worker below the top of the hierarchy is empowered to act without direction from above a second function of organizational form is to prevent the firm from undertaking substandard projects sah and stiglitz 1986 1991 show that when overall project quality is low hierarchy is preferred as it is more profitable when individual managers hold potential projects to high standards this work was extended by koh 1992 who showed that the firm minimizes its costs if managers undertaking the first review of a project reject it when they work in a hierarchy and accept it when they work in a polyarchy thus managers working in a hierarchy should have a higher standard for acceptance than those working a polyarchy sali 1991 describes managerial ability as also affecting the choice of organizational form since a single manager s influence is larger in a centralized organization than under decentralization when the manager is not able centralization may lead to markedly lower profits than a decentralized firm would achieve discovery and implementation of optimal policies may also be affected by the organization s structure a single location may search for the optimal policy to be implemented everywhere centralization or all units may search and may or may not adopt policies selected by others decentralization better policies are discovered when the organization employs multiple searchers and or when the single searcher becomes more sophisticated

synchronization of work schedules why do people work intermittently and why do they synchronize their work schedules a group of interacting workers who differ in tastes is analyzed a lifetime labor supply model is developed which combines tiring rhythmic changes in the environment and interactions among workers arising from communication and coordination a multiplicity of synchronized equilibria arises these equilibria can be ranked according to the length of the work period equilibria with longer hours are preferred by all workers in the group the worker with the highest aversion to work sets the standard and others conform to him copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

rational inattention and organizational focus this paper studies optimal communication flows in organizations a production process can be coordinated ex ante by letting agents stick to a prespecified plan of action alternatively agents may adapt to task specific shocks in which case tasks must be coordinated ex post using communication when attention is scarce an optimal organization coordinates only a few tasks ex post those tasks are higher performing more adaptive to the environment and influential hence scarce attention requires setting priorities not just local optimization our results provide microfoundations for a central idea in the management literature that firms should focus on a limited set of core competencies

hierarchical computation of the resource allocation problem some recent research on information processing in organizations has treated the agents who process information as endogenous this paper discusses a sample of models in this area which differ in their methodology but are unified by the fact that they study the resource allocation problem computational constraints are related to the structure and returns to scale of hierarchies

when does coordination require centralization this paper compares centralized and decentralized coordination when manag ers are privately informed and communicate strategically we consider a multi divisional organization in which decisions must be adapted to local conditions but also coordinated with each other information about local conditions is dispersed and held by self interested division managers who communicate via cheap talk the only available formal mechanism is the allocation of decision rights we show that a higher need for coordination improves horizontal com

ownership size and the formal structure of organizations evidence from us public and private firms 1992 2002 this study considers the effects of i ownership structure ii prior size dynamics of growth and decline and iii organizational size on changes in the formal structure of organizations using a broad sample of almost 70 000 us public and private firms i test the arguments by estimating conditional logistic regressions using as dependent variables two dimensions of organizational structural differentiation the number of formal subunits and hierarchical levels the findings show that public firms are more likely to elaborate structurally but less likely to simplify their structural differentiation as organizations grow decline in size they apparently tend to increase decrease their degree of structural differentiation however for a given change in size the level of structural differentiation is less likely to increase during growth than it is to decrease during decline indicating an asymmetric pattern i also find that organizational size can serve as a facilitator or inhibitor for structural change depending on the direction of change finally i find that the asymmetric pattern of growth and decline works differently for large and small firms the same proportional increase in size is more likely to generate structural differentiation for larger firms than for smaller firms but the same proportional decrease in size has a smaller likelihood of causing structural de differentiation for larger firms than for smaller firms copyright 2009 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

strategic shirking a theoretical analysis of multitasking and specialization we provide a new theory to explain why firms multitask workers instead of specializing them workers overperform in tasks they like and underperform in tasks they dislike to favorably influence future job assignments anticipating this firms may find it optimal to commit to future multitasking to induce workers to appropriately allocate effort early in the employment relationship we show that when the product market is volatile so that future product prices are uncertain the firm s ability to credibly commit to a multitasking strategy diminishes this generates a negative relationship between multitasking and product market volatility consistent with recent empirical evidence

on the relation between organisational practices and new technologies the role of time based competition this article studies some aspects of organisation choice while explicitly accounting for the fact that firms compete on the product market firms compete by introducing drastic innovations while organisation choice results from a tradeoff between productive efficiency and reactivity we show that the adoption of information technologies and the choice of reactive organisations are complements via an industry level equilibrium effect this view contrasts with the existing literature which emphasises the existence of similar complementarities at the firm level consistently with our model we find that industry level rather than firm level diffusion of information technologies explains firms organisational practices

some stylized facts on organization and its evolution abstract there is a striking difference between the large number of theoretical papers on firm organization and the lack of quantitative empirical evidence if on the one side economists are increasingly concerned with organization of firms on the other side organization still remains an ambiguous concept hardly analyzed empirically in this paper we develop a new empirical methodology based upon business history and previous theoretical works which allows us to describe some aspects of the organization of firms in quantitative terms this approach is instrumental to analyzing the hierarchical structure and the allocation of decision making activities in a sample composed of 438 italian metalworking plants we also study the dynamics of firm organization in the period 1975 1997 the results of the analysis show that the static choice of the organizational form crucially relies upon the loss of control phenomenon they also illustrate that the dynamics of hierarchical structure follows an inertial process characterized by incremental adjustments lastly both the organization of firms and more interestingly its evolution differ from one category of firms to another depending crucially on firm size

trust firm organization and the pattern of comparative advantage interpersonal trust favors the delegation of decisions and tasks within firms allowing the expansion of more productive units we show that this interaction between trust and firm organization contributes to shaping the pattern of comparative advantage high trust regions and countries exhibit larger value added and export shares in delegation intensive industries relative to other industries consistent with the idea that trust allows firms to expand beyond a narrow circle of family members and friends such effects are driven by an increase in average firm size reflecting in turn a shift of the size distribution away from the smallest firms and toward the small to medium ones according to our estimates trust is no less relevant than human or physical capital or institutions in shaping the pattern of comparative advantage

the firm as a communication network this paper analyzes how organizations can minimize costs of processing and communicating information communication is costly because it takes time for an agent to absorb new information sent by others agents can reduce this time by specializing in the processing of particular types of information when these returns to specialization outweigh costs of communication it is efficient for several agents to collaborate within a firm it is shown that efficient networks involve centralization that individuals delegate tasks to subordinates only if they are overloaded and that the number of transits to the top tends to be equalized across individual information items

organizational structure and product choice in knowledge intensive firms this paper formulates a model in which a firm simultaneously chooses its organizational structure and product position the firm s production is knowledge intensive requiring employees to solve problems a vertical hierarchy in which workers refer unsolved problems to managers facilitates the acquisition and leveraging of managers superior knowledge i show that a larger span of control is complementary to the provision of high value products moreover this complementarity is sustained when employees acquire sufficient knowledge and is further strengthened when the firm enhances its capability of communicating knowledge the model yields testable implications concerning 1 the fit between a firm s product position and span of control 2 the effect of information technology on product innovations and skill biased organizational changes and 3 the heterogeneity in hierarchical structure and human resource management in professional service firms this paper was accepted by bruno cassiman business strategy

flexible waste management under uncertainty in this paper we use stochastic dynamic programming to model the choice of a municipality which has to design an optimal waste management program under uncertainty about the price of recyclables in the secondary market the municipality can by undertaking an irreversible investment adopt a flexible program which integrates the existing landfill strategy with recycling keeping the option to switch back to landfilling if profitable we determine the optimal share of waste to be recycled and the optimal timing for the investment in such a flexible program we find that adopting a flexible program rather than a non flexible one the municipality i invests in recycling capacity under circumstances where it would not do so otherwise ii invests earlier and iii benefits from a higher expected net present value c 2013 elsevier b v all rights reserved less

queues and hierarchies this paper examines the optimal structure of hierarchies when workers differ in the range of tasks they can perform a hierarchical system may reduce costs by allowing most tasks to be handled by unskilled workers this may however increase delay for those tasks which must pass through several layers before reaching the appropriate level the paper characterises an optimal hierarchy when such a trade off exists organizations typically have a hierarchical structure in recent years economists have investigated a number of explanations for this for example the need to monitor workers the desire to exploit parallel processing by having agents work simultaneously on a project 2 the need to coordinate decisions 3 and so on this paper explores another explanation for the prevalence of hierarchies the desire to economize on skilled workers a firm typically has many problems flowing in that require decisions many of which do not need the attention of senior management by employing relatively unskilled workers to deal with tasks initially one may therefore be able to employ relatively few senior managers for example in a shop most customer queries can be dealt with by low paid assistants with only the more important problems passed on to supervisors the drawback of such a hierarchy is that it may delay some decisions by making them pass through more than one layer of control rather than being dealt with immediately the paper aims to explore the implications of this trade off between cost and delay for the structure of hierarchies there are of course many aspects of hierarchies this paper focuses on a particular one which has been previously neglected in the model considered workers differ in their ability to make decisions abler workers are capable of making good decisions in a wider range of tasks than less able ones there is no horizontal specialization into different jobs and so the only motivation for employing less able workers is that they command lower wages tasks pass through the levels of the hierarchy until they can be dealt with software support fits this framework well typically when one contacts a company because of a problem with a package the enquiry is initially dealt with by low level staff if they cannot solve the problem they hand it on to the next level who in turn hand it on to the next level if they cannot solve it and so on until it is dealt with a large number of levels may create considerable delay similarly in hospitals in the u k routine deliveries of babies are usually dealt with by mid wives a junior doctor will be brought in if there is a problem and he in turn will call

hierarchies of processors with endogenous capacity abstract capacity is defined as the number of information items a processor can handle in a given time this note studies the properties of a hierarchy of processors in which the capacities of processors are choice variables the hierarchy must pay each processor it decides to employ a wage which is an increasing function of the processor s capacity it is shown that efficient hierarchies tend to be characterized by three simple properties i within any given level capacity is uniform ii across levels the higher the level the higher the capacity and iii no skip level reporting occurs journal of economic literatureclassification numbers d21 j31 l23

optimal dissent in organizations we model an organization as a two agent hierarchy an informed decision maker in charge of selecting projects and a possibly uninformed implementer in charge of their execution both have intrinsic preferences over projects this paper models the costs and benefits of divergence between their preferences that is dissent within the organization dissent is useful to 1 foster the use of objective and sometimes private information in decision making and 2 give credibility to the decision maker s choices however dissent comes at the cost of hurting the implementer s intrinsic motivation thereby impairing organizational efficiency we show that dissent can be optimal in particular when information is useful and uncertainty is high moreover dissent remains an optimal organizational form even when implementers can choose their employer or when decision makers have real authority over hiring decisions

project characteristics incentives and team production we develop a model to show how agency conflicts free rider effects and monitoring costs interact to affect optimal team size and workers incentive contracts team size increases with project risk decreases with profitability and decreases with monitoring costs as a proportion of output our predictions are consistent with empirical evidence that firm specific risk has increased over time average corporate earnings have declined and firms organizational structures have also flattened the predicted effects of monitoring costs on team size are supported by evidence that improvements in information technology likely to lower monitoring costs lead to larger teams further firms with relatively more intangible assets where monitoring costs are likely to be higher are smaller optimal incentive intensities decrease with risk and increase with profitability the endogenous determination of team size accentuates the positive effects of a decline in risk and an increase in profitability on incentives

looking for a theory of the firm future challenges in this paper we present the main developments of the theories of the firm rooted in coase s coase r h 1937 the nature of the firm economica new series 4 386 405 seminal article we show that the two important topics of the nature and boundaries of the firm as well as the internal organization of the firm give place to essential contributions we present those contributions and their limits and then their possible developments finally we introduce the papers of this issue

the growing importance of social skills in the labor market the labor market increasingly rewards social skills between 1980 and 2012 jobs requiring high levels of social interaction grew by nearly 12 percentage points as a share of the u s labor force math intensive but less social jobs including many stem occupations shrank by 3 3 percentage points over the same period employment and wage growth were particularly strong for jobs requiring high levels of both math skill and social skills to understand these patterns i develop a model of team production where workers trade tasks to exploit their comparative advantage in the model social skills reduce coordination costs allowing workers to specialize and work together more efficiently the model generates predictions about sorting and the relative returns to skill across occupations which i investigate using data from the nlsy79 and the nlsy97 using a comparable set of skill measures and covariates across survey waves i find that the labor market return to social skills was much greater in the 2000s than in the mid 1980s and 1990s

the implications of network use production network externalities and public networking programmes for firm s productivity abstract empirical study reported in this paper explores the impacts of a firm s own use of network technologies the other firms use of compatible technologies and the firm s participation in the industry level networking programme on its productivity empirical analysis of a database from among the firms in the finnish electrical and electronics industry suggests a clear presence of production network externalities in the production function of the firms we do not find support for the expected positive relationship between the firm s own use of advanced communications technologies and its output and productivity the firm s participation in the industry specific networking programme instead seems to give it some strategic advantage in terms of higher productivity compared to the other firms it seems that in order to obtain non negligible gains from new communications technologies mere learning by using may not be sufficient a firm has to actively facilitate learning and promote strategic use of communications technologies our estimation results suggest that this goal of public diffusion support programmes might be reached by industry specific network programmes that support the introduction and strategic use of new network technologies in the firms