On Group Stability in Hierarchies and Networks

Posted: 8 Jul 2004

See all articles by Gabrielle Demange

Gabrielle Demange

Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Abstract

A hierarchical structure is a widespread organizational form in many areas. My aim in this paper is to provide a rationale for this fact based on two premises. First, a group organizes itself so as to achieve efficient coordination. Second, efficient coordination is achieved only if subgroups as well as individuals agree to cooperate. Even in situations in which there are gains to coordination, the agreement of each possible subgroup may be impossible to reach, resulting in instabilities. I argue that a hierarchical organization avoids such instabilities by distributing in an optimal way autonomy and blocking power to a restricted set of subgroups. Comparisons with nondirected networks are drawn.

Suggested Citation

Demange, Gabrielle, On Group Stability in Hierarchies and Networks. Journal of Political Economy, Vol. 112, pp. 754-778, August 2004. Available at SSRN: https://ssrn.com/abstract=562403

Gabrielle Demange (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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