1991 Articles

The Quality of Managers in Centralized vs. Decentralized Organizations

Stiglitz, Joseph E.; Sah, R. D.

The article focuses on the quality of managers in centralized and decentralized organizations. A central task of the leadership of any organization is the choice of its successors and subordinates. Corporate presidents spend a significant part of their time selecting upper management. Tenured faculty sometimes spends months deciding whether particular individuals should be admitted into their ranks. The effort and contentiousness which often go into this process suggests that it has important consequences for the organization. It is recognized that there are large differences in individuals' abilities and that the abilities of those in leadership inevitably affect the performance and survival of the organization. Stylized economies consisting of an arbitrary number of hierarchies of different sizes is considered here. The size of a hierarchy is the number of managers within the hierarchy, one of whom is the hierarch the boss and others are subordinates. The current hierarch appoints his own successor and those of his subordinates, but has no influence on any other hierarchy.