Cooperative Games and Disjunctive Permission Structures

In many (internal) organization structures economic decisions are made through a chain of decision makers. In this paper we give a game theoretic analysis of such hierarchical organization structures: Every participant has to get permission for his actions from at least one chain consisting of superiors. This assumption forms the foundation of the disjunctive approach to cooperative games with a permission structure. A computational method for the study of these disjunctive games with a permission structure is provided. We show that the disjunctive approach implies that there is competition among superiors over the leadership of a subordinate, which may lead to a higher payoff of the subordinate in the presence of more superiors. This feature is used to show that even in the presence of small transaction costs the formation of a hierarchical production organization may be Pareto superior to the situation without such a hierarchical firm.