We develop a theory of firm scope and structure in which merging two firms allows the integrated firm's top management to allocate resources that are costly to trade. However, information about their use resides with division managers. We show that establishing truthful upward communication...

The paper analyzes the choice of organizational structure as solution to the trade-off between controlling behavior based on authority rights and minimizing costs for implementing high efforts. The analysis includes the owner of a firm, a top manager and two division heads. If it is more...

The paper analyzes how the choice of organizational structure leads to the best compromise between controlling behavior based on authority rights and minimizing costs for implementing high efforts. Concentrated delegation and hierarchical delegation turn out to be never an optimal compromise. If...

The paper analyzes how the choice of organizational structure leads to the best compromise between controlling behavior based on authority rights and minimizing costs for implementing high efforts. Concentrated delegation and hierarchical delegation turn out to be never an optimal compromise. If...

We develop a theory of firm scope in which integrating two firms into one facilitates the allocation of resources, but leads to weaker incentives for effort, compared with non-integration. Our theory makes minimal assumptions about the underlying agency problem. Moreover, the benefits and costs...

The inclination of individuals to improve their performance when it lags behind that of others with whom they naturally compare themselves can be harnessed to optimize the individuals’ effort in work and study. In a given set of individuals, we characterize each individual by his relative...

The inclination of individuals to improve their performance when it lags behind that of others with whom they naturally compare themselves can be harnessed to optimize the individuals' effort in work and study. In a given set of individuals, we characterize each individual by his relative...

The rise of the network as a form of economic organization renders problematic our standard understanding of how capitalism is governed. As the governance of production shifts from vertical integration to horizontal contract, a puzzle arises: how do contracts, presumed to be susceptible to...

Recruitment is often delegated to senior employees. Delegated recruitment, however, is vulnerable to moral hazard because senior employees may avoid recruiting the best candidates who could threaten their future seniority. We find that seniors will not deliberately choose bad candidates if the...

Inspired by facts from the private sector construction industry, we develop a model that explains many stylized facts of procurement contracts. The buyer in our model incurs a cost of providing a comprehensive design, and is faced with a trade-off between providing incentives and reducing ex...