Divide et Impera: Curbing Employees' Duties to Remain in Office

27 Pages Posted: 27 Feb 2014 Last revised: 22 Jul 2017

See all articles by Hendrik Hakenes

Hendrik Hakenes

Finance Group; Centre for Economic Policy Research (CEPR)

Svetlana Katolnik

Leibniz Universität Hannover

Date Written: July 20, 2017

Abstract

The number of employees that answer directly to their manager varies widely. An employee, if she is good, might replace her manager sometime, so the manager prefers to have few employees. But if the manager has few employees, she must give each of them more tasks, giving them the opportunity to prove themselves. So the manager may prefer smaller tasks, and thus more employees. We construct a theoretical model to show that the manager's optimal strategy has a corner solution: hiring as few employees as possible, or as many as possible minimizes the manager's probability of being replaced. When labor costs increase with the number of employees, there is a trade-off for the manager: with more employees, the probability of her replacement decreases but labor costs increase. From the firm's perspective, the manager hires too many employees.

Keywords: Direct Reports, Managerial Replacement, Entrenchment, Organizational Authority, Task Delegation, Learning

JEL Classification: J21, L23, M12, M5

Suggested Citation

Hakenes, Hendrik and Katolnik, Svetlana, Divide et Impera: Curbing Employees' Duties to Remain in Office (July 20, 2017). Available at SSRN: https://ssrn.com/abstract=2402130 or http://dx.doi.org/10.2139/ssrn.2402130

Hendrik Hakenes (Contact Author)

Finance Group ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
+49-228-73-9225 (Phone)

HOME PAGE: http://www.finance.uni-bonn.de/hakenes

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Svetlana Katolnik

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

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