Abstract
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.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Aghion, P., and J. Tirole. 1997. Formal and real authority in organizations. Journal of Political Economy 105: 1–29.
Alchian, A., and H. Demsetz. 1972. Production, information costs, and economic organization. American Economic Review 62: 777–795.
Antrà s, P., Garicano, L. and Rossi-Hansberg, E. 2006. Offshoring in a knowledge economy. Quarterly Journal of Economics 121 (forthcoming).
Arrow, K. 1974. The limits of organization. New York: W.W. Norton.
Baker, G., R. Gibbons, and K.J. Murphy. 1999. Informal authority in organizations. Journal of Law, Economics & Organization 15: 56–73.
Becker, G., and G. Stigler. 1974. Law enforcement, malfeasance, and compensation of enforcers. Journal of Legal Studies 3: 1–18.
Beggs, A. 2001. Queues and hierarchies. Review of Economic Studies 68: 297–322.
Bolton, P., and M. Dewatripont. 1994. The firm as a communication network. Quarterly Journal of Economics 109: 809–839.
Calvo, G., and S. Wellisz. 1978. Supervision, loss of control, and the optimum size of the firm. Journal of Political Economy 86: 943–952.
Crémer, J. 1980. A partial theory of the optimal organization of a bureaucracy. Bell Journal of Economics 11: 683–693.
Garicano, L. 2000. Hierarchies and the organization of knowledge in production. Journal of Political Economy 108: 874–904.
Garicano, L. and Hubbard, T. 2007. Managerial leverage is limited by the extent of the market: Hierarchies, specialization and the utilization of lawyers’ human capital. Journal of Law and Economics (forthcoming).
Garicano, L., and E. Rossi-Hansberg. 2005. Organization and inequality in a knowledge economy. Working Paper No. 11458. Cambridge, MA: NBER.
Geanakoplos, J., and P. Milgrom. 1991. A theory of hierarchies based on limited managerial attention. Journal of the Japanese and International Economies 5: 205–225.
Hart, O., and J. Moore. 2005. On the design of hierarchies: Coordination vs. specialization. Journal of Political Economy 113: 675–702.
Lucas, R. 1978. On the size distribution of business firms. Bell Journal of Economics 9: 508–523.
Orlikowski, W. 1996. Improvising organizational transformation over time: A situated change perspective. Information Systems Research 7: 63–92.
Qian, Y. 1994. Incentives and loss of control in an optimal hierarchy. Review of Economic Studies 61: 527–544.
Radner, R. 1993. The organization of decentralized information processes. Econometrica 61: 1109–1146.
Radner, R., and T. Van Zandt. 1992. Information processing in teams and returns to scale. Annales d’Economie et de la Statistique 25 (26): 265–298.
Rajan, R., and L. Zingales. 2001. The firm as a dedicated hierarchy: A theory of the origins and growth of firms. Quarterly Journal of Economics 116: 805–851.
Rosen, S. 1982. Authority, control, and the distribution of earnings. Bell Journal of Economics 13: 311–323.
Van Zandt, T. 1999. Real-time decentralized information processing as a model of organizations with boundedly rational agents. Review of Economic Studies 66: 633–658.
Van Zandt, T., and R. Radner. 2001. Real-time decentralized information processing and returns to scale. Economic Theory 17: 497–544.
Vayanos, D. 2003. The decentralization of information processing in the presence of interactions. Review of Economic Studies 70: 667–695.
Author information
Authors and Affiliations
Editor information
Copyright information
© 2018 Macmillan Publishers Ltd.
About this entry
Cite this entry
Garicano, L. (2018). Hierarchy. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_709
Download citation
DOI: https://doi.org/10.1057/978-1-349-95189-5_709
Published:
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-95188-8
Online ISBN: 978-1-349-95189-5
eBook Packages: Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences