Annals of Finance

, Volume 4, Issue 4, pp 481–503

Technology driven organizational structure of the firm

Open Access
Research Article

DOI: 10.1007/s10436-007-0087-x

Cite this article as:
van den Brink, R. & Ruys, P.H.M. Ann Finance (2008) 4: 481. doi:10.1007/s10436-007-0087-x

Abstract

We model a corporate firm with a variable internal organizational structure that adapts to various degrees of technological cooperation. The entrepreneur determines the organizational structure that maximizes profits under participation constraints. Wages are determined by an internal cooperative pay-system, constrained by external reservation wages. We show that closer cooperation between production-workers results in a shorter organization with enhanced positional wages relative to the external benchmarks. The corporate firm is embedded in a competitive market economy that determines reservation wages and market prices. We also allow for more general technologies and provide conditions guaranteeing a finite optimal size of the firm.

Keywords

Hierarchy Organization of the firm Cooperative production Optimal firm size Positional wages Pay-system Labor complementarity 

JEL Classification

D23 J24 L22 

Copyright information

© Springer-Verlag 2007

Authors and Affiliations

  1. 1.Department of Econometrics, Tinbergen InstituteFree UniversityAmsterdamThe Netherlands
  2. 2.Department of Econometrics and OR, CentER and TILECTilburg UniversityTilburgThe Netherlands

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