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American Economic Journal: Microeconomics: Vol. 2 No. 4 (November 2010)

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Organizing for Synergies

Article Citation

Dessein, Wouter, Luis Garicano, and Robert Gertner. 2010. "Organizing for Synergies." American Economic Journal: Microeconomics, 2(4): 77-114.

DOI: 10.1257/mic.2.4.77

Abstract

Large companies are usually organized into business units, yet some activities are almost always centralized in a company-wide functional unit. We first show that organizations endogenously create an incentive conflict between functional managers (who desire excessive standardization) and business-unit managers (who desire excessive local adaptation). We then study how the allocation of authority and tasks to functional and business-unit managers interacts with this endogenous incentive conflict. Our analysis generates testable implications for the likely success of mergers and for the organizational structure and incentives inside multidivisional firms. (JEL D23, D86, G34, L22)

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Authors

Dessein, Wouter (Columbia U)
Garicano, Luis (Center for Economic Performance, London School of Economics)
Gertner, Robert (U Chicago)

JEL Classifications

D23: Organizational Behavior; Transaction Costs; Property Rights
D86: Economics of Contract: Theory
G34: Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
L22: Firm Organization and Market Structure

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