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A Theory of Bureaucratization Based on Reciprocity and Collusive Behavior

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  • David Martimort

Abstract

This paper addresses how an organization becomes a bureaucracy. Bureaucratization emerges from a self‐enforced norm of reciprocity between agents in an organization who exchange favors and promote subgoals which differ from the objective of the firm. Such collusive behavior becomes harder and harder to prevent over time. As a result, incentive schemes lose their flexibility and bureaucratization becomes a necessary equilibrium phenomenon in the long run. The distribution of agents' private information, their preferences for the future and the force of the social norm of reciprocity are analyzed in terms of their effects on the long‐run behavior of the organization and on the speed of the bureaucratization process.

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  • David Martimort, 1997. "A Theory of Bureaucratization Based on Reciprocity and Collusive Behavior," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(4), pages 555-579, December.
    • Handle: RePEc:bla:scandj:v:99:y:1997:i:4:p:555-579
    DOI: 10.1111/1467-9442.00081
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    Cited by:

    1. Dongsoo Shin & Roland Strausz, 2024. "Insourcing versus outsourcing in a vertical structure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(3), pages 509-538, August.
    2. Dongsoo Shin, 2008. "Collusion and Outcome Equivalency," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 449-459, September.
    3. Brunk, Gregory G. & Hunter, Kennith G., 2008. "An ecological perspective on interest groups and economic stagnation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(1), pages 194-212, February.
    4. Jaesoo Kim & Dongsoo Shin, 2023. "Vertical Relationships with Hidden Interactions," Games, MDPI, vol. 14(6), pages 1-21, October.
    5. Simon Gächter & Armin Falk, 2002. "Reputation and Reciprocity: Consequences for the Labour Relation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 1-26, March.
    6. Dongsoo Shin & Roland Strausz, 2024. "Insourcing Vs Outsourcing in Vertical Structure," Rationality and Competition Discussion Paper Series 495, CRC TRR 190 Rationality and Competition.
    7. Dongsoo Shin, 2007. "Contracts under Wage Compression: A Case of Beneficial Collusion," Southern Economic Journal, John Wiley & Sons, vol. 74(1), pages 143-157, July.
    8. POITEVIN, Michel, 2000. "Innis Lecture: Can the Theory of Incentives Explain Decentralization?," Cahiers de recherche 2000-13, Universite de Montreal, Departement de sciences economiques.
    9. Simon Gaechter & Armin Falk, 2001. "Reputation or Reciprocity? An Experimental Investigation," CESifo Working Paper Series 496, CESifo.

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