Too Big to Succeed? Overstaffing in Firms

100 Pages Posted: 9 Jul 2016 Last revised: 10 Jul 2020

See all articles by Hans K. Hvide

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Yanren Zhang

China Center for Economic Studies (CCES), Fudan University

Date Written: May 10, 2019

Abstract

Overstaffng appears to be a source of signi cant ineffciencies in organizations, but there is little economic theory that informs us why. We extend the canonical Lazear-Rosen tournament model to a dynamic setting that yields overstaffng at the managerial level. Overstaffng can be optimal in first best, without moral hazard, if the redundant manager gains experience and increases the firm's future productivity. In second best, overstaffing can be a way to provide incentives to young workers without "overpaying" middle-aged workers, a mechanism that is illustrated with several examples from real world organizations. The model may offer some independent interest by integrating a generational structure into a tournament model.

Keywords: Bureaucracy, Overstaffing, Personnel economics, Productive efficiency, Promotions, Tournament

JEL Classification: D86, J31, M51

Suggested Citation

Hvide, Hans and Zhang, Yanren, Too Big to Succeed? Overstaffing in Firms (May 10, 2019). Available at SSRN: https://ssrn.com/abstract=2806289 or http://dx.doi.org/10.2139/ssrn.2806289

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Yanren Zhang

China Center for Economic Studies (CCES), Fudan University ( email )

600 Guoquan Road
Shanghai, 200433
China

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