Oct, 31st, Feng Hong

Lecturer: Feng Hong, Southwestern University of Finance and Economics

 

Time: Oct. 31st, Thursday, 15:30 pm-17:00 pm

 

Venue: Boxue 1222

 

Topic: A Theory of Organizational Dynamics: Internal Politics and Efficiency

 

Abstract: In this paper, we develop an infinite horizon dynamic model to study how internal politics affects an organization’s admission of new members and investigate the implications of the dynamic interactions between internal politics and admission of new members on the organization’s long run outcomes and welfare. We consider a three-member organization in which one member retires in each period and the incumbent members vote to admit a candidate to fill the vacancy. Agents differ by quality that is valued equally by members in the organization, and each agent belongs to one of the two types, where members of the majority type in any period control the organization’s rent distribution and share the total rent of that period among themselves. We characterize the symmetric Markov equilibria with undominated strategies of the model and develop a method to compare their long run welfare. It is found that the organization should require consensus in admitting new members: unanimity voting does a better job than majority voting in terms of long run welfare. In addition, internal politics can be a useful incentive instrument in organizational design: organizations with a certain degree of incongruity perform better in the long run than either harmonious or very divided organizations.