The Dynamics of Resource Allocation in Research Organizations

As a first step towards understanding the evolution of small groups in firms, this paper develops and tests a simple decision-theoretical model of research-unit evolution in which, as managers resolve their uncertainty over time, they shut down under-performing units and remove under-performing unit heads. The selection process generates several testable hypotheses about how unit and head characteristics affect the assignment of heads to units and resource allocation within the firm. Data on research units in firms is used to test the model and estimate the relative importance of the different effects on resource allocation.