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The advantage of hierarchy: Inducing responsibility and selecting ability?

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  • Otto, Philipp E.
  • Bolle, Friedel

Abstract

We theoretically and experimentally investigate team production with and without a leading member of the team (called allocator) who has discretion over the input of all team members including herself. In a further extension of the allocator game, a superior (called principal) is introduced who is interested in high production and who can exchange the allocator. Team production and remuneration are modeled as a linear public good game with a finite number of periods. The main results are that (a) the appointment of a random allocator improves production so that average incomes of all workers, including the allocator, are higher when compared with voluntary contributions, (b) the introduction of a principal further improves production as well as satisfaction and fairness ratings. (a) and (b) describe the advantage of a tiered hierarchy. We provide a formal model of hierarchical decisions as well as derive and test various behavioral hypotheses.

Suggested Citation

  • Otto, Philipp E. & Bolle, Friedel, 2016. "The advantage of hierarchy: Inducing responsibility and selecting ability?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 65(C), pages 49-57.
    • Handle: RePEc:eee:soceco:v:65:y:2016:i:c:p:49-57
    DOI: 10.1016/j.socec.2016.08.008
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    More about this item

    Keywords

    Public good experiments; Hierarchical delegation; Principal-agent models; Team production;
    All these keywords.

    JEL classification:

    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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