Elizabeth Lyons, UC San Diego School of Global Policy & Strategy
Elizabeth Lyons, UC San Diego School of Global Policy & Strategy
The Effect of Organizational Design on Fairness and Efficiency in Firm Formation
The Effect of Organizational Design on Fairness and Efficiency in Firm Formation
08 Nov 20171:30 PM – 3:00 PM
Open to public
Location:
Baker Library | Bloomberg Center 101
Organizer:
This
paper tests whether different organizational frames, partnership versus
employment relationship, affect the ability of an organization to undertake profitable
production opportunities. In a
laboratory setting, subjects are paired with a new partner in each round. They get the opportunity to chat with the
partner and decide whether to forgo their outside option and enter into joint
production and how to divide the profits from joint production. Subjects frequently
make inefficient decisions when joint production is optimal, particularly when
equal profit sharing leaves one pair member worse off than her outside option.
Framing the opportunity as an employment opportunity rather than a partnership
opportunity significantly reduces these inefficiencies and increases the
incidence of profitable joint production.
Evidence from chat logs and profit divisions demonstrate that bargaining
is more efficient under the employment relationship framing because of a
reduction in concern for equal division of profits. These results can be
rationalized by a model with concerns for fairness where fairness incorporates
the outside options for some, but not all, subjects.