On the Design of Hierarchies: Coordination versus Specialization

John Moore, Oliver Hart

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

We consider an economy that has to decide how assets are to be used. Agents have ideas, but these ideas conflict. We suppose that decision making authority is determined by hierarchy: each asset has a chain of command, and the most senior person with an idea exercises authority. We analyze the optimal hierarchical structure given that some agents coordinate and other specialize. Among other things, our theory explains why coordinators should typically be senior to specialists and why pyramidal hierarchies may be optimal. Our theory also throws light on the optimal degree of decentralization inside a firm and on firm boundaries.
Original languageEnglish
Pages (from-to)675-702
Number of pages28
JournalJournal of Political Economy
Volume113
Issue number4
Publication statusPublished - Oct 2005

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