Public Choice

, Volume 150, Issue 3–4, pp 579–594

How organizational structure can reduce rent-seeking

Article

Abstract

In multi-tiered organizations, individuals can engage in unproductive rent-seeking activities both within and between the divisions of the organization. Nevertheless, a multi-tiered organizational structure can induce efficiency gains by decreasing rent-seeking. We present a model of production and simultaneous internal and external rent-seeking, assuming a logistic contest success function. In equilibrium, there is generically either internal or external rent-seeking, but not both. A multi-tiered organization leads to less rent-seeking and higher welfare, even though the production technology gives no reason for any specific organizational structure. Our findings constitute a new efficiency rationale for multi-tiered organizations.

Keywords

Rent-seeking Hierarchy Federalism Organization 

JEL Classification

D72 D74 H11 H74 

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Free University of BerlinBerlinGermany
  2. 2.University Bonn and IIWBonnGermany

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