Hierarchies lighten the burden of the enormous informational requirements of the price system under uncertainty by acquiring more knowledge and information than any individual can. They are thus are useful for information handling. They can also allow agents to engage in collective actions by decreasing the risk of opportunistic behaviour. But trade-offs are involved because hierarchies impose costs, including communication among agents. This article reviews the literature on this trade-off and its implications for labour markets.
KeywordsBounded rationality Earnings distribution Firm size Hierarchy Incentive conflict Information economics Monitoring theories Principal and agent Queuing theory Uncertainty
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