Discussion paper

DP13526 Organizations with Power-Hungry Agents

We analyze a model of hierarchies in organizations where neither decisions themselves nor the delegation of decisions are contractible, and where power-hungry agents derive a private benefit from making decisions. Two distinct agency problems arise and interact: Subordinates take more biased decisions (which favors adding more hierarchical layers), but uninformed superiors may fail to delegate (which favors removing layers). A designer may remove intermediate layers of the hierarchy (eliminate middle managers) or de-integrate an organization by removing top layers (eliminate top managers). We show that stronger preferences for power result in smaller, more de-integrated hierarchies. Our key insight is that hoarding of decision rights is especially severe at the top of the hierarchy.


Dessein, W and R Holden (2019), ‘DP13526 Organizations with Power-Hungry Agents‘, CEPR Discussion Paper No. 13526. CEPR Press, Paris & London. https://cepr.org/publications/dp13526