A Model of Vacancy Chains as a Mechanism for Resource Allocation

Vacancy chains can be tracked in any context where a scarce resource flows through different owners, such as employment positions. However, under certain conditions vacancy chains, rather than market or other forms of competition, determine the allocation of the resource. This article develops a computational and formal model of vacancy chains as a mechanism for resource allocation in order to find out its properties with respect to organizational forms. It is found that hierarchies with less middle managers than a pure pyramid are particular prone to make use of vacancy chains in order to allocate resources — e.g. positions — among their members. In fact, vacancy chains often disappear when information is widely avaliable. This happens because information is likely to attract applicants to the resource, who may engage in competition and eventually agree to regulate it by means of a market. On the contrary, organizations that are thick at the bottom and at the top but thin in the middle are such that more information increases the likelihood that resource allocation is regulated by means of vacancy chains.