Arbeitspapier
Authority and incentives in organizations
The paper analyzes how the choice of organizational structure leads to the best compromise between controlling behavior based on authority rights and minimizing costs for implementing high efforts. Concentrated delegation and hierarchical delegation turn out to be never an optimal compromise. If the CEO is more efficient than the division heads (i.e., the CEO's costs from exerting high effort are smaller than those of the division heads), the owner will prefer full delegation to the divisions to replace high incentive pay to the division heads by incentives based on private benefits of control. In that situation, decentralization is the optimal form of full delegation given that selfish behavior is more important than cooperation, but cross-authority delegation is optimal for cooperation being crucial. If, however, the division heads are clearly more efficient than the CEO, the owner will choose centralization given that cooperation is the dominating issue, but partial delegation if selfish behavior is crucial.
- Language
-
Englisch
- Bibliographic citation
-
Series: IZA Discussion Papers ; No. 7271
- Classification
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Wirtschaft
Firm Behavior: Theory
Organizational Behavior; Transaction Costs; Property Rights
Economics of Contract: Theory
Firm Organization and Market Structure
- Subject
-
authority
centralization
contracts
decentralization
moral hazard
- Event
-
Geistige Schöpfung
- (who)
-
Kräkel, Matthias
- Event
-
Veröffentlichung
- (who)
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Institute for the Study of Labor (IZA)
- (where)
-
Bonn
- (when)
-
2013
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Kräkel, Matthias
- Institute for the Study of Labor (IZA)
Time of origin
- 2013
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