A THEORY OF BUREAUCRATIZATION BASED ON RECIPROCITY AND COLLUSIVE BEHAVIOR

This paper addresses how an organization becomes a bureaucracy. Bureau cratization emerges from a self-enforced norm of reciprocity between a gents in an organization who exchange favors and promote subgoals whic h differ from the objective of the firm. Such collusive behavior becom es harder and harder to prevent over time. As a result, incentive sche mes lose their flexibility and bureaucratization becomes a necessary e quilibrium phenomenon in the long run. The distribution of agents' pri vate information, their preferences for the future and the force of th e social norm of reciprocity are analyzed in terms of their effects on the long-run behavior of the organization and on the speed of the bur eaucratization process.