The efficiency of organizational forms

Chapter 14 is concerned with four kinds of organizational forms that might arise in a firm: the bureaucracy, clan, military, and market form. It is shown that, when taken to be in an idealized state, the allocation of activities and restrictions secured in each of the first three is internally Pareto optimal (in a slightly difference sense than that of Chapter 13). The organizational cost of enforcing certain restrictions on the activities chosen by employees (to prevent things like shirking) are also considered. In this context, the option of, say, a U-form firm adding ranks (height) and maintaining its U-form structure as opposed to adding separate divisions (under appropriate conditions, increasing its thickness) and moving to an M-form structure is compared in terms of such costs.