Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93784
Authors: 
Kräkel, Matthias
Year of Publication: 
2013
Series/Report no.: 
SFB/TR 15 Discussion Paper 412
Abstract: 
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 expensive to incentivize the division heads, the owner will prefer full delegation of authority to them to replace their high incentive pay by incentives based on private benefits of control. In that situation, decentralization is optimal given that selfish behavior is more important than cooperation for maximizing returns, but concentrated delegation of full authority to a single division head is optimal for cooperation being crucial. If, however, incentivizing the division heads is clearly less expensive than creating incentives for the top manager, the owner will choose centralization given that cooperation is the dominating issue, but partial delegation if selfish behavior is crucial.
Subjects: 
authority
centralization
contracts
decentralization
moral hazard
JEL: 
D21
D23
D86
L22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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