Management Rotation as a Mechanism to Support Favor Exchanges in Organizations

Abstract

We model exchanges of favors between division managers in a multidivisional organization. The model shows that rotating managers across divisions periodically can better support such exchanges as compared to a policy of fixed managerial roles. We show that rotation dominates fixed roles when agents’ discount rates are at moderate levels, and when divisions’ needs for favors are asymmetric. We discuss several empirical implications of the model, as well as applications to other kinds of organizations such as government agencies and strategic alliances.