Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93903
Authors: 
Shin, Dongsoo
Strausz, Roland
Year of Publication: 
2010
Series/Report no.: 
SFB/TR 15 Discussion Paper 318
Abstract: 
We study the optimal hierarchical structure of an organization under limited commitment. The organization cannot make a long term commitment to wages and output levels, while it can commit to its hierarchical structure. We show that the optimal hierarchical structure is horizontal when it is highly likely that the employees are efficient or inefficient. By contrast, when such likelihood is intermediate or output does not expand very fast over time, the optimal hierarchical structure is vertical - with a vertical hierarchy, the organization can mitigate dynamic incentive problems linked to limited commitment.
Subjects: 
Dynamic Incentives
Organization Design
JEL: 
D82
D86
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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