Optimal Management of Evolving Hierarchies

Jens Leth Hougaard*, Juan D. Moreno-Ternero*, Lars Peter Østerdal*

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

Abstract

We study the optimal management of evolving hierarchies of revenue-generating agents. The initiator invests into expanding the hierarchy by adding another agent, who will bring revenues to the joint venture and who will invest herself into expanding the hierarchy further, and so on. The higher the investments (which are private information), the higher the probability of expanding the hierarchy. An allocation scheme specifies how revenues are distributed, as the hierarchy evolves. We obtain schemes that are socially optimal and initiator-optimal, respectively. Our results have potential applications for blockchain, cryptocurrencies, social mobilization, and multilevel marketing.
Original languageEnglish
JournalManagement Science
Number of pages15
ISSN0025-1909
DOIs
Publication statusPublished - 23 Nov 2021

Bibliographical note

Epub ahead of print. Published online: 23. November 2021

Keywords

  • Optimal allocation schemes
  • Hierachies
  • Multi-level marketing
  • Nash equilibrium
  • Blockchain

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