How organizational structure can reduce rent-seeking
- 281 Downloads
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.
KeywordsRent-seeking Hierarchy Federalism Organization
JEL ClassificationD72 D74 H11 H74
Unable to display preview. Download preview PDF.
- Alchian, A. E., & Demsetz, H. (1972). Production, information costs, and economic organization. American Economic Review, 62, 777–795. Google Scholar
- Garfinkel, M., & Skaperdas, S. (2007). Economics of conflict: an overview. In T. Sandler & K. Hartley (Eds.), Handbook of defense economics (Vol. 2). Amsterdam: North Holland. Chap. 22. Google Scholar
- Hirshleifer, J. (1991). The technology of conflict as an economic activity. American Economic Review, 81, 130–134. Google Scholar
- McFadden, D. (1974). Conditional logit analysis of qualitative choice behavior. In P. Zarembka (Ed.), Frontiers in econometrics (pp. 105–142). San Diego: Academic Press. Google Scholar
- Milgrom, P., & Roberts, J. (1992). Economics, organization, and management. New York: Prentice Hall. Google Scholar
- Mueller, D. C. (2003). Public choice III. Cambridge: Cambridge University Press. Google Scholar
- Münster, J., & Staal, K. (2010, forthcoming). War with outsiders makes peace inside. Conflict Management and Peace Science. Google Scholar
- Risse, S. (2010, forthcoming). Two-stage group rent-seeking with negatively interdependent preferences. Public Choice. doi: 10.1007/s11127-010-9618-5
- Skaperdas, S. (1996). Contest success functions. Economic Theory, 7, 283–290. Google Scholar