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Rent Seeking in Hierarchical Firms

Author

Listed:
  • Ira N. Gang

    (Rutgers University)

  • Gil S. Epstein

    (Bar Ilan University)

Abstract

Hierarchical firms are enterprises with rigid internal job ladders. We examine the state enterprise as the prototypical hierarchical firm. In the state enterprise, promotion of employees through the internal hierarchy is determined by the workers’ allocation of time between rent seeking and productive activity. Our model shows that given the incentive structure of the state enterprise we tend to see less productive and more adept rent seekers at senior management positions in such firms. Moreover, as we move up the firm’s hierarchy, a decline in the productivity levels of the workers will be observed.

Suggested Citation

  • Ira N. Gang & Gil S. Epstein, 2002. "Rent Seeking in Hierarchical Firms," Departmental Working Papers 200218, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200218
    as

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    References listed on IDEAS

    as
    1. Gil S. Epstein & Arye L. Hillman & Heinrich W. Ursprung, 1999. "The King Never Emigrates," Review of Development Economics, Wiley Blackwell, vol. 3(2), pages 107-121, June.
    2. Michael Keren & David Levhari, 1979. "The Optimum Span of Control in a Pure Hierarchy," Management Science, INFORMS, vol. 25(11), pages 1162-1172, November.
    3. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    4. repec:bla:rdevec:v:3:y:1999:i:2:p:107-21 is not listed on IDEAS
    5. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    6. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, March.
    7. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 251-262, Springer.
    8. Keren, Michael & Levhari, David, 1989. "Decentralization, aggregation, control loss and costs in a hierarchical model of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 11(2), pages 213-236, March.
    9. Epstein, Gil S., 1996. "The extraction of natural resources from two sites under uncertainty," Economics Letters, Elsevier, vol. 51(3), pages 309-313, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    hierarchical firms; internal job ladder; promotion; rent-seeking; state enterprise;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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