The Logic of Leadership and Organizational Hierarchies

Eric Alston (University of Colorado)
Lee J Alston (Indiana University)
Bernardo Mueller (University of Brasilia)

Abstract : Leadership presents a puzzle for traditional economic theories of organizations. The theory of the firm recognizes advantages to centralizing authority through the facilitation of rule-based and delegated decision-making. However, the benefits of centralized authority do not address the specific contributions leaders make when they exercise their decision rights. Put differently, if effective leadership within a hierarchy is simply a function of institutionally defining and constraining a given leader’s authority, why does it matter which specific individual is at the top of the hierarchy? Nonetheless, the importance of leadership searches on the part of private and public organizations, as well as the compensation for these roles, indicates that specific individuals matter for downstream contingencies. We develop a property rights/transaction costs theory of leadership, and use the economic logic of agency and coordination costs to test the effect of changes in Deans of Law and Business Schools, NFL coaches and Brazilian soccer managers. We find an impact of leadership changes both within and between organizations.

Non-competitive Wage-setting As a Cause of Unfriendly and Inefficient Leadership

Robert Dur (Erasmus University Rotterdam)
Ola Kvaloy (University of Stavanger)
Anja Schöttner (Humboldt-Universität zu Berlin)

Abstract : This paper develops a simple economic model to examine how leadership styles in organizations depend on the prevailing wage-setting conditions for workers. In particular, we examine a leader who can - in addition to the use of monetary incentives - motivate a worker by adopting leadership styles that differ in their non-monetary consequences for the worker's well-being. Some leadership styles produce non-monetary benefits for workers (such as those involving the provision of praise to high-performing workers), other styles impose non-monetary costs (such as those involving social punishment for low performers). We show that leaders never use the latter type of leadership when the worker is hired in a competitive labor market. In contrast, in labor markets with non-competitive wage-setting (e.g., in the presence of trade union bargaining or minimum wage legislation) leaders sometimes do use the `unfriendly' style, and the more so the worse the worker's labor market prospects are. We show that this is socially inefficient. `Friendly' leadership styles are always adopted when they are socially efficient.

A Field Experiment on Leadership and Team Performance in Non-routine Analytical Team Tasks

Florian Englmaier (University of Munich)
Stefan Grimm (Allianz Behavioral Economics Unit)
Dominik Grothe (University of Munich)
David Schindler (Tilburg University)
Simeon Schudy (University of Munich)

Abstract : Leadership has been considered a promising tool to improve team performance in complex tasks, but leaders and leadership styles are chosen endogenously in many team work environments. To uncover the causal effect of such endogenous leadership choices, we conduct a field experiment with more than 280 teams (1250 individuals) performing a complex non-routine task. We randomly encourage teams to decide on a leader and find that teams in treatment are significantly more likely to finish the task. Leadership appears to influence team organization but does not reduce teams' willingness to "explore" original solutions.