Journal of Accounting Research Vol. 38 No. 2 2000
Information Technology and Optimal Firm Structure
Abstract
In this paper I use a principal-agent framework to explore the relation between the hierarchical structure of firms and the accounting information technologies available to them. My analysis is related to that in Melumad, Mookherjee, and Reichelstein [1992] and Ziv [1993]. Melumad, Mookherjee, and Reichelstein model a principal who employs two privately informed agents and chooses either a flat structure where both agents contract and communicate with the principal, or a hierarchical structure in which the principal contracts with only one agent, who subsequently writes a subcontract with a second agent, creating a twolayer organizational form.' Melumad, Mookherjee, and Reichelstein use the revelation principal to prove the general superiority of the flat structure. They add exogenous restrictions on communication (with respect to dimensionality and complexity of the message space) to demonstrate a demand for hierarchy. Ziv [1993], in a moral hazard setting, solves for the optimal number of agents in a one-layer firm, under different exogenously given information structures. In this paper, I take an approach that allows the principal to choose the number of layers in the firm, the
- DOI
- 10.2307/2672935
- Volume
- 38
- Issue
- 2
- Pages
- 297
- Sources
- bibtex:phds-export.bib openalex crossref