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A Theory of Organizational Dynamics: Internal Politics and Efficiency

Author

Listed:
  • Hongbin Cai
  • Hong Feng
  • Xi Weng

Abstract

We consider a three-member organization in which one member retires in each period and the incumbent members vote to admit a candidate to fill the vacancy. Candidates differ in quality and belong to one of two types, and majority-type members share the total rent of that period. We characterize the symmetric Markov equilibria with undominated strategies and compare the long-term welfare among them. Unanimity voting is better than majority voting at promoting long-term welfare. In addition, organizations with a certain degree of incongruity perform better in the long run than either harmonious or very divided organizations.

Suggested Citation

  • Hongbin Cai & Hong Feng & Xi Weng, 2018. "A Theory of Organizational Dynamics: Internal Politics and Efficiency," American Economic Journal: Microeconomics, American Economic Association, vol. 10(4), pages 94-130, November.
    • Handle: RePEc:aea:aejmic:v:10:y:2018:i:4:p:94-130
    Note: DOI: 10.1257/mic.20160237
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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