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Organizational Flexibility and Cooperative Task Allocation among Agents

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  • Jacques Lawarrée
  • Dongsoo Shin

Abstract

We compare rigid and flexible organizations when side contracting among agents is possible. Within a rigid organization, each agent can produce only one component of the final product, whereas within a flexible organization, the agents can reallocate their tasks during the production period. In our model, the principal can only observe the joint output produced by the agents. Our analysis reveals that within a flexible organization, side transfers are exchanged between the agents in equilibrium, and not only an efficient agent but also an inefficient agent may acquire a rent. Yet, the principal's payoff is higher when the organization is flexible, as the agents' rent-seeking behavior generates a more efficient production technology.

Suggested Citation

  • Jacques Lawarrée & Dongsoo Shin, 2005. "Organizational Flexibility and Cooperative Task Allocation among Agents," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(4), pages 621-635, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200512)161:4_621:ofacta_2.0.tx_2-5
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    References listed on IDEAS

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    1. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-636, May.
    2. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-656, May.
    3. Yeon-Koo Che, 1995. "Revolving Doors and the Optimal Tolerance for Agency Collusion," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 378-397, Autumn.
    4. Fátima Barros & Inés Macho‐Stadler, 1998. "Competition for Managers and Product Market Efficiency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 89-103, March.
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    Cited by:

    1. Dongsoo Shin, 2008. "Collusion and Outcome Equivalency," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 449-459, September.
    2. Kyung Hwan Baik, 2007. "Equilibrium Contingent Compensation in Contests with Delegation," Southern Economic Journal, John Wiley & Sons, vol. 73(4), pages 986-1002, April.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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