Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2005-02-14
Number: 05-020/1
Author-Name: Rene van den Brink
Author-Email: jrbrink@feweb.vu.nl
Author-Workplace-Name: Department of Economics, Free University Amsterdam
Author-Name: Pieter H.M. Ruys
Author-Email: P.H.M.Ruys@uvt.nl
Author-Workplace-Name: Dept. of Econometrics & Operational Research, Tilburg University
Title: Positional Wages, Market Wages and Firm Size
Abstract: We model a firm in an institutional market setting, consisting of a production technology and its governance. The governance consists of a hierarchical firm structure, a cost efficiency parameter,and an internal pay system. The depth of the firm is determined by profit maximization under the participation restriction that lowest wages meet reservation wages. Reservation wages are endogenously determined in the institutional market economy. We give conditions guaranteeing a finite optimal firm size. Using CES-production technologies we illustrate how firm size depends on labor substitutability, and show that a linear technology yields the deepest structure and a complementary the flattest structure.
Classification-JEL: D23; J24; L22
Keywords: Optimal firm size; governance; hierarchy; internal organization structure; cooperative game; permission value; labor substitutability; general equilibrium
File-Url: https://papers.tinbergen.nl/05020.pdf
File-Format: application/pdf
File-Size: 1492613 bytes
Handle: RePEc:tin:wpaper:20050020