How organizational structure can reduce rent-seeking |
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Authors: | Johannes Münster Klaas Staal |
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Affiliation: | 1. Free University of Berlin, Boltzmannstrasse 20, 14195, Berlin, Germany 2. University Bonn and IIW, Lennestr. 37, 53113, Bonn, Germany
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Abstract: | In multi-tiered organizations, individuals can engage in unproductive rent-seeking activities both within and between the divisions of the organization. Nevertheless, a multi-tiered organizational structure can induce efficiency gains by decreasing rent-seeking. We present a model of production and simultaneous internal and external rent-seeking, assuming a logistic contest success function. In equilibrium, there is generically either internal or external rent-seeking, but not both. A multi-tiered organization leads to less rent-seeking and higher welfare, even though the production technology gives no reason for any specific organizational structure. Our findings constitute a new efficiency rationale for multi-tiered organizations. |
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