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Power in Profit‐Maximizing Organizations

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  • Julio J. Rotemberg

Abstract

I study how profit‐maximizing organizations make decisions. Members of organizations tend to have incompatible preferences over decisions, but willingness to pay for decisions plays a very limited role in actual decision making. A sizable empirical literature documents that people who provide critical services, are hard to replace, or deal effectively with external shocks are powerful; they have disproportionate influence over decisions. This can be profit maximizing because the right to shape the firm through its decisions renders the firm more attractive as an employer. Thus, the relative costliness of employees' departures should affect their relative power.

Suggested Citation

  • Julio J. Rotemberg, 1993. "Power in Profit‐Maximizing Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(2), pages 165-198, June.
    • Handle: RePEc:bla:jemstr:v:2:y:1993:i:2:p:165-198
    DOI: 10.1111/j.1430-9134.1993.00165.x
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    References listed on IDEAS

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    1. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-257, April.
    2. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    3. Margaret Meyer & Paul Milgrom & John Roberts, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 9-35, March.
    4. Julio J. Rotemberg, 1993. "Power in Profit‐Maximizing Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(2), pages 165-198, June.
    5. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    6. Michael L. Tushman & Elaine Romanelli, 1983. "Uncertainty, Social Location and Influence in Decision Making: A Sociometric Analysis," Management Science, INFORMS, vol. 29(1), pages 12-23, January.
    7. Markus, M. Lynne & Pfeffer, Jeffrey, 1983. "Power and the design and implementation of accounting and control systems," Accounting, Organizations and Society, Elsevier, vol. 8(2-3), pages 205-218, May.
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    Cited by:

    1. Daniel Herbold & Heiner Schumacher, 2020. "Relational retention," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(4), pages 490-502, June.
    2. Julio J. Rotemberg, 1993. "Power in Profit‐Maximizing Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(2), pages 165-198, June.
    3. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, February.
    4. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    5. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    6. Samuel Bowles & Herbert Gintis, 2007. "Power," UMASS Amherst Economics Working Papers 2007-03, University of Massachusetts Amherst, Department of Economics.
    7. Raghuram G. Rajan & Luigi Zingales, 1998. "The Governance of the New Enterprise," CRSP working papers 487, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    8. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    9. Rajan, Raghuram G. & Zingales, Luigi, 2000. "The tyranny of inequality," Journal of Public Economics, Elsevier, vol. 76(3), pages 521-558, June.
    10. Jaime Ortega, 2003. "Power in the Firm and Managerial Career Concerns," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(1), pages 1-29, March.
    11. Moriya, Fumitoshi & 森谷, 文利, 2006. "The Optimality of Power in Organizations: Power Acquisition Process and Evaluation," Working Paper Series 036, Center for Japanese Business Studies (HJBS), Graduate School of Commerce and Management Hitotsubashi University.
    12. Banerjee, Swapnendu & Saha, Soumyarup, 2024. "Absolute Power Corrupts Absolutely?: A Political Agency Theoretic Approach," MPRA Paper 121109, University Library of Munich, Germany.

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