The hierarchical structure of a firm : a geometric approach

Ng, Mei Li Evelyn. (2004). The hierarchical structure of a firm : a geometric approach Honours Thesis, School of Economics, The University of Queensland.

       
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Author Ng, Mei Li Evelyn.
Thesis Title The hierarchical structure of a firm : a geometric approach
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2004
Thesis type Honours Thesis
Total pages 107
Language eng
Subjects 14 Economics
Formatted abstract The purpose of this thesis is to determine what economic factors influence the hierarchical structure of firms and how the hierarchy responds to a change in those economic factors. A geometric approach is employed to model the firm's hierarchical structure. Specifically, the sector of a circle is used to represent the shape of a firm's hierarchy. The height of the sector represents the number of layers in a hierarchy and the angle of the sector represents the span of control of a superior. The firm's production function is specified in terms of the height and angle of the arc and the geometric arc formula is used in the formulation of the cost. This transforms the problem of designing the hierarchical structure of a firm to one of choosing the height and the angle of the sector of a circle. The optimal hierarchical structure is then determined by maximising the firm's profit. Using the theoretical model, the impacts of economies of scale, input substitutability and output price on the firm's hierarchical structure were examined. The main results of the model are that the firm's hierarchy will (1) expand, contract, or remain unchanged with an increase in its economies of scale contingent on certain parameter values; (2) expand for an increase in the task specialisation of its workers; and (3) expand for an increase in its output price. A manufacturing and an accounting firm located in Queensland were selected as case studies to test the applicability of the results. Both cases to a certain extent supported that technological improvements that increase both a firm's economies of scale and worker specialisation will cause an expansion in its hierarchical structure.

 
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