In an internal capital market, individual departments may compete for a share of the firm’s budget by engaging in wasteful influence activities. We show that firms with more levels of hierarchy may experience lower influence costs than less hierarchical firms, even though the former provide...

We introduce a class of dynamical systems called Higher Order Cellular Automata (HOCA). These are based on ordinary CA, but have a hierarchical, or multi-level, structure and/or dynamics. We present a detailed formalism for HOCA and illustrate the concepts through four examples. Throughout the...

We show that in business groups with efficient internal capital markets, resources may be channelled to either more- or less-profitable units. Depending on the amount of internal resources, a group may exit a market in response to increased competition, or channel funds to the subsidiary...

We examine the effect of competition for scarce corporate financial resources on managers' incentives to generate profitable investment opportunities. Operating an active internal capital market is unambiguously beneficial only if divisions have the same level of financial resources and the same...