TY  - JOUR
AU  - Rajan,Raghuram G.
AU  - Zingales,Luigi
TI  - The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7546
PY  - 2000
Y2  - February 2000
UR  - http://www.nber.org/papers/w7546
L1  - http://www.nber.org/papers/w7546.pdf
N1  - Author contact info:
Raghuram Rajan
Booth School of Business
University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-4437
Fax: 773/702-0458
E-Mail: raghuram.rajan@ChicagoBooth.edu

Luigi Zingales
Booth School of Business
The University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-3196
Fax: 773/834-2081
E-Mail: luigi.zingales@ChicagoBooth.edu
AB  - A fundamental problem entrepreneurs face in the formative stages of their businesses is how to provide incentives for employees to protect, rather than  steal, the source of organizational rents. We study how the entrepreneur's response to this problem will determine the organization's internal structure, growth, and its eventual size. In particular, our model suggests large, steep hierarchies will predominate in physical capital intensive industries, and these will typically have seniority-based promotion policies. By contrast, flat hierarchies will be seen in human capital intensive industries. These will have up-or-out promotion systems, where experienced managers either become owners or are fired. Furthermore, flat hierarchies will have more distinctive technologies or cultures than steep hierarchies. The model points to some essential differences between organized hierarchies and markets.
ER  -