Economic Theory Seminar - Emil Temnyalov (UTS)

Title: Organisational structure and differential treatment

Abstract: This paper studies the effect of organisational structure on differential treatment in hiring and promotions in labour markets. Agents have unobservable payoff-relevant types, observable signals and non-payoff-relevant characteristics. A principal assigns the agents within an organisational hierarchy with different job positions and different capacities across the positions, to maximise surplus.

I first introduce new metrics to quantify how much differential treatment is observed within an organisation. I then introduce a taxonomy to compare organisational hierarchies. Finally, I show that flatter and top-heavier hierarchies result in less differential treatment when agents have increasing signal differences across characteristics. I discuss the implications for the optimal design of hierarchies. These results can also be applied beyond the context of labour markets, to compare the extent of differential treatment in student-to-school assignments with vertically differentiated schools.