Power in the Firm and Managerial Career Concerns

Abstract

With more power, a manager can make more decisions or more important ones, and in this way have more impact on his firm. As a consequence, firm performance provides more information about the abilities of more powerful managers, who are more "visible". In this paper I analyze how the allocation of power in the firm affects the managers' career concerns when no manager's power can be increased without reducing another manager's. I show that, with a simple linear technology and risk-neutral managers, it is generally optimal to divide power in an unequal way, even though this may create conflicts of interest between managers. I also analyze how optimal pay-forperformance schemes should depend on the allocation of power.

Some Simple Economics of Open Source

“…19 To be certain, commercial companies leave Application Programming Interfaces for other people to provide add-ons, but this is still quite di¡erent from opening the source code. 20 On the relationship between empowerment and career concerns, see Ortega [2000]. In Cassiman's [1998] analysis of research corporations (for-pro¢t centers bringing together ¢rms with similar research goals), free riding by parent companies boosts the researchers' autonomy and helps attracting better talents.…”

Collaboration, peer review and open source software

“…13 Possibilities range from refusing to inspect another's code, to not inspecting another's code rigorously to either help a co-worker or prevent retaliation, to re-defining what the exact definition of a ''defect'' is to their own benefit. 14 See Holmströ m (1982), Gibbons and Murphy (1992), Dewatripont et al (1999), Jeon (1996), Auriol et al (2002), Ortega (2003), Auriol et al (2002), Meyers and Vickers (1997), Baliga and Sjostrom (2001), and Lazear (1989).…”

Career Concerns, Matching, and Optimal Disclosure Policy*

“…In contrast to this article, most of these works assume no information asymmetry between the current and the prospective employers. (See also Scharfstein and Stein, 1990;Gibbons and Murphy, 1992;Jeon, 1996;Ortega, 2003. ) Informational asymmetry between current and future employers opens up a role for strategic information transmission.…”