Organizing for Synergies

American Economic Journal: Microeconomics, Vol. 2, No. 4, pp. 77-114, 2010

39 Pages Posted: 22 Oct 2011

See all articles by Luis Garicano

Luis Garicano

IE Business School; Centre for Economic Policy Research (CEPR)

Wouter Dessein

Columbia Business School - Finance and Economics

Robert H. Gertner

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Date Written: November 2010

Abstract

Large companies are usually organized into business units, yet some activities are almost always centralized in a company-wide functional unit. We first show that organizations endogenously create an incentive conflict between functional managers (who desire excessive standardization) and business-unit managers (who desire excessive local adaptation). We then study how the allocation of authority and tasks to functional and business-unit managers interacts with this endogenous incentive conflict. Our analysis generates testable implications for the likely success of mergers and for the organizational structure and incentives inside multidivisional firms.

Suggested Citation

Garicano, Luis and Dessein, Wouter and Gertner, Robert H., Organizing for Synergies (November 2010). American Economic Journal: Microeconomics, Vol. 2, No. 4, pp. 77-114, 2010 , Available at SSRN: https://ssrn.com/abstract=1946971

Luis Garicano

IE Business School ( email )

Calle María de Molina, 11
Madrid, 28006
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Wouter Dessein (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Robert H. Gertner

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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