Article2010

A Double Moral Hazard Model of Organization Design

Elazar Berkovitch · Ronen Israel · Yossi Spiegel C

12 citations0/0 files storedJournal of Economics & Management Strategy

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Organizational Management and Leadership Accounting and Organizational Management Outsourcing and Supply Chain Management

Abstract

We develop a theory of organization design in which the firm's structure is chosen by trading off ex post efficiency in the implementation of projects against ex ante efficiency in the selection of projects. Using our framework, we derive a novel set of empirical predictions regarding differences between firms with a functional structure and firms with a divisional structure. We examine how the overall profitability of the two structures is affected by various factors like size, complexity, and asymmetry in the importance of tasks and also explore the desirability of adopting a narrow business strategy.

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References

1987The Economic Institutions of Capitalism 1996Production, Information Costs and Economic Organization 1975Markets and Hierarchies 1963Strategy and Structure: Chapters in the History of Industrial Enterprise.1982Corporate Financial Structure and Managerial Incentives 1995Credit and Efficiency in Centralized and Decentralized Economies 1982The Economics of Information and Uncertainty 2000Incentives, Information, and Organizational Form

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