Economics of dynastic organizations

• Main Author: Zakharova, Daria V
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01-01-2000
• Subjects: Conflicts of interest; Consumption; Copyright; Criminology; Economic theory; Economics; Employee promotions; Employees; Endowment; Equilibrium; Essays; Expected utility; Experiments; Gangs; Organizational behavior; Organized crime; Studies; Subsidies; Utility functions; Wages & salaries; Workers
• ISBN: 9780599864641; 0599864648

Many organizations share the following features: they are long-lived and their leaders have a finite life span. In such environment, the organization outlives its founders. I call such organizations “dynastic.” I begin by constructing a simple but general model of these kinds of organizations that focuses on their intertemporal hiring decisions. An infinitely lived organization consists of members who live two periods. A young member is a worker and can be promoted to become a managers when old. I then use this model to demonstrate how the dynastic aspect of organizations matters for two distinct issues. The first essay of this thesis concerns up-or-out promotion rules that are widely used by law firms, research universities, and consulting groups. In dynastic organizations, a conflict of interest about hiring decisions may arise across different generations of decision makers. In this essay, I show that this potential conflict can be eliminated by an up-or-out promotion rule. Future generations of managers do not want to depart from an optimal plan selected by the founders of the organization, i.e. the optimal plan is time-consistent. The second essay applies the theory of dynastic organizations to model a criminal gang. Current theories of crime rely largely on static models, whereas in reality criminal organizations are often long lived and highly persistent. For example the Mafia has been present in Italy since the ninth century. I show that the dynastic nature of the organizational structure of a gang affects crime fighting strategies in the context of my model. In other words, the dynastic element in modeling criminal organizations matters in policy analysis.