Leadership and Organizational Hierarchies

55 Pages Posted: 1 Apr 2020

See all articles by Eric Alston

Eric Alston

Finance Division, University of Colorado Boulder

Lee J. Alston

Indiana University; National Bureau of Economic Research (NBER)

Bernardo Mueller

Universidade de Brasilia

Date Written: February 2020


Organizations are hierarchies with leaders at the top. Why do we have leaders instead of an algorithm making decisions? The theory of the firm recognizes advantages to centralizing authority. However, the organizational benefits of hierarchy have not been clearly separated from the specific contributions of leaders. We start from the premise that all contracts are incomplete. Not all contingencies can be specified ex-ante. Leadership is the ability to successfully manage principal/agent and coordination costs. The balance between these two types of costs depends on the purpose of the organization. Leadership also entails moving policies/strategies closer to the purpose of the organization. We develop hypotheses about the role of leadership across organizations. We test our hypotheses with data on Soccer Managers in Brazil, NFL coaches, and Deans of Business and Law Schools. Consistent with our hypotheses we find that leadership and changing leaders matters more in sports teams than for Deans.

Keywords: Leadership, Organizational Economics, Hierarchies, Delegation, Decision Rights, Organizations, Personnel Economics, Firm Structure

JEL Classification: M5, M12, L22

Suggested Citation

Alston, Eric and Alston, Lee J. and Mueller, Bernardo, Leadership and Organizational Hierarchies (February 2020). Available at SSRN: https://ssrn.com/abstract=3549964 or http://dx.doi.org/10.2139/ssrn.3549964

Eric Alston (Contact Author)

Finance Division, University of Colorado Boulder ( email )

Campus Box 419
Boulder, CO 80309
United States

Lee J. Alston

Indiana University ( email )

Wylie Hall
100 South Woodlawn
Bloomington, IN 47408–3895
United States

HOME PAGE: http://https://economics.indiana.edu/about/faculty/alston-lee.html

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bernardo Mueller

Universidade de Brasilia ( email )

Dept. de Economia
Universidade de Brasilia
Brasilia, DF 70910-900
55 61 981110349 (Phone)
55 61 3349-1303 (Fax)

HOME PAGE: http://bpmmueller.wixsite.com/bernardo-mueller

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