Organizations with Power-Hungry Agents

52 Pages Posted: 26 Aug 2017 Last revised: 30 Jan 2019

See all articles by Wouter Dessein

Wouter Dessein

Columbia Business School - Finance and Economics

Richard Holden

University of New South Wales (UNSW)

Multiple version iconThere are 2 versions of this paper

Date Written: January 28, 2019

Abstract

We analyze a model of hierarchies in organizations where neither decisions themselves nor the delegation of decisions are contractible, and where power-hungry agents derive a private benefit from making decisions. Two distinct agency problems arise and interact: Subordinates take more biased decisions (which favors adding more hierarchical layers), but uninformed superiors may fail to delegate (which favors removing layers). A designer may remove intermediate layers of the hierarchy (eliminate middle managers) or de-integrate an organization by removing top layers (eliminate top managers). We show that stronger preferences for power result in smaller, more de-integrated hierarchies. Our key insight is that hoarding of decision rights is especially severe at the top of the hierarchy.

Keywords: Hierarchies, Delegation, Decision rights, Power, Organization design

Suggested Citation

Dessein, Wouter and Holden, Richard, Organizations with Power-Hungry Agents (January 28, 2019). Columbia Business School Research Paper No. 17-90, Available at SSRN: https://ssrn.com/abstract=3024631 or http://dx.doi.org/10.2139/ssrn.3024631

Wouter Dessein (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Richard Holden

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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