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Optimal Management of Evolving Hierarchies

Author

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  • Jens Leth Hougaard

    (Department of Food and Resource Economics, University of Copenhagen, DK-1958 Frederiksberg, Denmark; Economics, NYU Shanghai, Shanghai 200122, China)

  • Juan D. Moreno-Ternero

    (Department of Economics, Universidad Pablo de Olavide, 41013 Seville, Spain)

  • Lars Peter Østerdal

    (Department of Economics, Copenhagen Business School, DK-2000 Frederiksberg, Denmark)

Abstract

We study the optimal management of evolving hierarchies of revenue-generating agents. The initiator invests into expanding the hierarchy by adding another agent, who will bring revenues to the joint venture and who will invest herself into expanding the hierarchy further, and so on. The higher the investments (which are private information), the higher the probability of expanding the hierarchy. An allocation scheme specifies how revenues are distributed, as the hierarchy evolves. We obtain schemes that are socially optimal and initiator-optimal, respectively. Our results have potential applications for blockchain, cryptocurrencies, social mobilization, and multilevel marketing.

Suggested Citation

  • Jens Leth Hougaard & Juan D. Moreno-Ternero & Lars Peter Østerdal, 2022. "Optimal Management of Evolving Hierarchies," Management Science, INFORMS, vol. 68(8), pages 6024-6038, August.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:8:p:6024-6038
    DOI: 10.1287/mnsc.2021.4185
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    Cited by:

    1. Wang, Siyi & Cai, Xiaoqiang & Guan, Lei & Zhang, Lianmin, 2022. "What do institutional investors bring to initial coin offerings (ICOs)?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 167(C).
    2. Dehez, Pierre, 2023. "Sharing a collective probability of success," Mathematical Social Sciences, Elsevier, vol. 123(C), pages 122-127.
    3. Jens Gudmundsson & Jens Leth Hougaard & Juan D. Moreno-Ternero & Lars Peter {O}sterdal, 2023. "Successive Incentives," Papers 2311.12494, arXiv.org.
    4. Jens Gudmundsson & Jens Leth Hougaard & Jay Sethuraman, 2024. "Managing cascading disruptions through optimal liability assignment," Papers 2408.07361, arXiv.org.

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    More about this item

    Keywords

    optimal allocation schemes; hierarchies; multi-level marketing; Nash equilibrium; blockchain;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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