We analyze a model of hierarchies in organizations where neither decisions themselves nor the delegation of decisions are contractible, and where power-hungry agents derive a private benefit from making decisions. Two distinct agency problems arise and interact: Subordinates take more biased decisions (which favors adding more hierarchical layers), but uninformed superiors may fail to delegate (which favors removing layers). A designer may remove intermediate layers of the hierarchy (eliminate middle managers) or de-integrate an organization by removing top layers (eliminate top managers). We show that stronger preferences for power result in smaller, more de-integrated hierarchies. Our key insight is that hoarding of decision rights is especially severe at the top of the hierarchy.
Dessein, Wouter, and Richard Holden. "Organizations with Power-Hungry Agents." Columbia Business School, January 28, 2018.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.