Abstract:
Based on a simple model of knowledge hierarchies, we investigate organizations in which members decide what knowledge to acquire, and whether to work on their own problems or to help others. A steep hierarchy is more efficient than a flat hierarchy, if more diverse knowledge is needed to solve many problems. But the steep hierarchy also requires more division of labor, and the resulting coordination problems might delay or prevent the adoption of the efficient organizational form. We explore these theoretical findings in a laboratory experiment.
