Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86451
Authors: 
van den Brink, Rene
Ruys, Pieter H.M.
Year of Publication: 
2005
Series/Report no.: 
Tinbergen Institute Discussion Paper 05-020/1
Abstract: 
We model a firm in an institutional market setting, consisting of a production technology and its governance. The governance consists of a hierarchical firm structure, a cost efficiency parameter,and an internal pay system. The depth of the firm is determined by profit maximization under the participation restriction that lowest wages meet reservation wages. Reservation wages are endogenously determined in the institutional market economy. We give conditions guaranteeing a finite optimal firm size. Using CES-production technologies we illustrate how firm size depends on labor substitutability, and show that a linear technology yields the deepest structure and a complementary the flattest structure.
Subjects: 
Optimal firm size
governance
hierarchy
internal organization structure
cooperative game
permission value
labor substitutability
general equilibrium
JEL: 
D23
J24
L22
Document Type: 
Working Paper

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