Corporate Downsizing to Rebuild Team Spirit


We propose a new theory for downsizing, based on strategic reasons, rather than technological ones. A crisis may lead to a decrease in the willingness to cooperate in an organization, and therefore to a bad equilibrium. A consensual downsizing episode may signal credibly that survivors are willing to cooperate, and thus, it may be optimal and efficiency-enhancing, as the empirical evidence suggests. A variation of the same mechanism leads to "efficient" upsizing.
Published as: Corporate Downsizing to Rebuild Team Spirit. How Costly Voting Can Foster Cooperation in Journal of the European Economic Association , Vol. 5, No. 5, 1016--1042, January, 2007