Key points are not available for this paper at this time.
Private information creates a cost of operating a hierarchy, which becomes larger as the hierarchical distance between the information source and the decision maker increases. When information about a firm's capabilities is dispersed among the individuals in the firm, production is inefficient even though everyone behaves rationally. Because hierarchies need rents in order to function, a firm with a long hierarchy may not be viable in a competitive industry.
McAfee et al. (Fri,) studied this question.