Distributional Conflict in Organizations

24 Pages Posted: 31 Jan 2006

See all articles by Roman Inderst

Roman Inderst

Goethe University Frankfurt

Holger M. Mueller

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Karl Warneryd

Stockholm School of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Abstract

Hierarchy can function as an instrument to channel influence activities or power struggles in organizations. Contrary to what has frequently been argued, we show that multi-divisional organizations may involve lower influence costs than single-tier organizations, even though they offer more scope for organizational conflict and have more executives that can be influenced. These benefits derive from two effects. First, part of the conflict in multi-divisional organizations takes place on the division level, where a small number of agents fight over only a fraction of the overall prize. Second, by grouping agents into common divisions, multi-divisional organizations create free-rider problems in rent-seeking. Our model sheds new light on the desirability of divestitures and the transition from the U- to the M-form by US corporations in the 1920s.

Keywords: Hierarchy, conflict, influence activities, U-form vs. M-form

JEL Classification: C72, D74, G31, G34

Suggested Citation

Inderst, Roman and Mueller, Holger M. and Warneryd, Karl, Distributional Conflict in Organizations. European Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=879752

Roman Inderst

Goethe University Frankfurt ( email )

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Holger M. Mueller (Contact Author)

New York University (NYU) - Department of Finance ( email )

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Karl Warneryd

Stockholm School of Economics ( email )

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

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