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The impact of complexity and managerial diseconomies on hierarchical governance

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  • Brahm, Francisco
  • Tarziján, Jorge

Abstract

Based on data from Chilean construction projects, we evaluate how the boundary choice of a focal activity is affected by the number of activities integrated elsewhere in a project and by the level of “between complexity” and “within complexity” of those activities. Our results show that managerial diseconomies of scale, which arise when contractors integrate more activities, and the different types of complexity, affect the relative advantages of hierarchical governance. In a novel result, we also show that interactions between the number of integrated activities and the types of complexity affect the relative merits of hierarchical governance to handle an activity, meaning that complexity and the extent of a project's integration are systematically intertwined in the explanation of boundary choices. Our findings indicate a need for research on interdependencies between different boundary choices and suggest that the evaluation of these interdependencies should consider the complexity of activities.

Suggested Citation

  • Brahm, Francisco & Tarziján, Jorge, 2012. "The impact of complexity and managerial diseconomies on hierarchical governance," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 586-599.
    • Handle: RePEc:eee:jeborg:v:84:y:2012:i:2:p:586-599
    DOI: 10.1016/j.jebo.2012.09.003
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    Cited by:

    1. Mariani, Laura & Cavenago, Dario, 2014. "Defining hospital's internal boundaries. An organisational complexity criterion," Health Policy, Elsevier, vol. 117(2), pages 239-246.

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    More about this item

    Keywords

    Firm boundaries; Complexity; Managerial diseconomies; Make or buy;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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