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Incentives

Maskin, Eric and Qian, Yingyi and Xu, Cheng-Gang (1997) Incentives. 371. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 371

Abstract

We model organization as the command-and-communication network of managers erected on top of technology (which is modeled as a collection of plants). In our framework, the role of a manager is to deal with shocks that affect the plants that he oversees directly or indirectly. Organizational form is then an instrument for (a) economizing on managerial costs, and (b) providing managerial incentives. We show that two particular organizational forms, the M-form (multi-divisional form) and the U-form (unitary form), are the optimal structures when shocks are sufficiently “big”. We argue however that, under certain empirical assumptions, the M-form is likely to be strictly preferable once incentives are taken into account. We conclude by showing that the empirical hypotheses on which this comparison rests are satisfied for Chinese data.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 1997 Eric Maskin, Yingyi Qian and Chenggang Xu
Subjects: H Social Sciences > HD Industries. Land use. Labor
Sets: Collections > Economists Online
Departments > Economics
Date Deposited: 10 Mar 2008 11:37
Last Modified: 01 Oct 2010 08:51
URI: http://eprints.lse.ac.uk/id/eprint/3751

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