Endogenous Organizational Restructuring: Status, Productivity & Meritocratic Dynamics

Abstract

We model the dynamics of endogenous organizational restructuring where those being assigned positions in an organization can themselves lobby for who gets which position. Internal labor market changes depend on how much individuals value their personal status, organizational output, their friends’ welfare, and the quality of their departmental colleagues. We show that an organization converges to the meritocratic, efficient assignment of people to positions by a combination of agents valuing organizational output and restrictions on the scale of reorganization. However, concentrated decision-making power, lax restrictions on agenda-setting protocols, certain friendship networks, and department/team structures can hinder such paths of restructuring.