A Model of Vacancy Chains as a Mechanism for Resource Allocation

Abstract

Vacancy chains can be tracked in any context where a the availability of a desirable resource triggers a cascade of occupations through which the scarce resource flows through different owners. However, under certain conditions vacancy chains, rather than markets or other forms of competition, determine the allocation of the resource. This article develops a formal and computational model of vacancy chains as a mechanism for resource allocation in order to find out their properties with respect to organizational forms.

We find that hierarchies with few middle managers are particularly prone to make use of vacancy chains in order to allocate resources that originate at the top, such as employment positions. In fact, vacancy chains often disappear when information is widely available, because information is likely to attract applicants who engage in a competition. Thus, the many middle managers of a thick organization may compete for a resource that originates at the top. On the contrary, organizations that are thick at the bottom and at the top, but thin in the middle, are most likely to regulate resource allocation by means of vacancy chains.

Keywords: Resource allocation, Organizational form, Labor market

JEL Classification: L29, J69, C69