Artur Raviv

Organization Design

This paper attempts to explain organization structure based on optimal coordination of interactions among activities. The main idea is that each manager is capable of detecting and coordinating interactions only within his limited area of expertise. Only the CEO can coordinate company wide interactions. The optimal design of the organization trades off the costs and benefits of various configurations of managers. Our results consist of classifying the characteristics of activities and managerial costs that lead to the matrix organization, the functional hierarchy, the divisional hierarchy, or a fiat hierarchy. We also investigate the effect of changing the costs of various managers on the nature of the optimal organization, including the extent of centralization.

Corporate control contests and capital structure

Abstract This paper explores the determinants of corporate takeover methods (proxy fights versus tender offers) and their outcomes and price effects. We focus on the effect of leverage on the takeover method and outcome. The model predicts, for example, that the targets stock price appreciates less following a successful proxy contest than in a successful tender offer. In addition, we obtain several other results on price effects and on the capital structure changes that accompany contests for corporate control. Some of our results are compared with the existing empirical evidence.

Corporate governance: Voting rights and majority rules

Abstract In this paper, we derive conditions under which the simple majority voting rule for electing controlling management and one share-one vote constitute a socially optimal corporate governance rule. We also show that other majority rules and/or multiple classes of shares are not socially optimal. Finally we show that an entrepreneur would choose to issue two securities, one with only cash flow claims and no votes and one with only votes and no cash flow claims, if this were allowed. This scheme, regardless of the majority rule adopted, is not socially optimal.

The design of securities

Abstract This paper investigates the determinants of security design. We consider the assignment of both cash flows and voting rights, focusing on corporate control. We postulate that a conflict of interest exists between contestants for control and outside investors. The conflict arises because private benefits of control give contestants an incentive to acquire control even when this reduces firm value. Security design is a tool for resolving these conflicts and maximizing firm value. Our main result is that a single voting security is optimal.

Capital budgeting and delegation1

As part of our ongoing research into capital budgeting processes as responses to decentralized information and incentive problems, we focus in this paper on when a level of a managerial hierarchy will delegate the allocation of capital across projects and time to the level below it. In our model, delegation is a way to save on costly investigation of proposed projects. Therefore, it is more extensive the larger are the costs of such investigations. This delegation takes advantage of the fact that the lower-level managers preferences are assumed to be similar (though not identical) to those of the higher level.

Durability of Capital Goods: Taxes and Market Structure

This paper examines the durability of capital goods produced under different market structures when tax considerations are included. Since investment tax credit and depreciation allowances are realized by the owner of the durable good, the durability of products produced by an industry which sells its output differs from that of an industry which rents. For each of these two commercial forms we consider both monopolistic and competitive market structure. Potential gains from different forms of regulation are discussed.

Comments on "Economic Foundations for Pricing."

I would like to commend Thomas Nagle for the competent execution of what, at least at first sight, seems an intractable task. Some of the comments that follow should not be interpreted as a criticism of his survey; rather, they express my thoughts on the subject and some suggestions for what might be a desirable addition to the current survey. I will not attempt to identify papers or areas that were not included in the survey. It seems to me much more fruitful to discuss the general issues and methodologies involved rather than attempt to fill a few voids in the survey presented. The economics literature dealing with pricing problems is enormous and bringing together this vast body of research in one unified framework is most difficult. A good survey article should provide not only an introduction for a nonspecialist but also new insights for the specialist, who is already conversant with the relevant literature. In order to evaluate the current state of the art as well as the survey, we have to specify first the potential contribution of economic theory for pricing decisions and marketing. Having understood this potential contribution, we can discuss whether the current survey fulfills its goals and then identify possibilities for improvement. What can economic theory contribute to our understanding of pricing decisions? How can marketing scientists and practitioners benefit from economic theory? In my view there are two answers to these questions. First, economics contributes a set of analytical methods, economic paradigms, and guides for model building useful in marketing applications. Second, economic theory provides a set of elementary concepts and insights applicable in various pricing decisions. In what follows, I will discuss each of these contributions separately and will argue that the current survey is most useful in clarifying the