This paper adds to the scant literature on the internal structure of organizations by focusing on the organizational design of nongovernmental development organizations (NGDOs). Specifically, we evaluate prominent Spanish NGDOs during 2010 to determine the balance of two key organizational design choices at the NGDO's project department: delegation of authority to lower-level employees and the provision of incentive compensation to ensure that these employees do not misuse their discretion. We develop a simultaneous model of these two choices that treats delegation and incentive compensation as endogenous variables. The results of our empirical analysis provide evidence that delegation of decision rights and incentive compensation systems are interdependent allowing scholars and practitioners a better understanding of the determinants of organizational design choices.
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