Decision-making in organizations: when to delegate and whom to delegate

Ambec, Stefan and Poitevin, Michel (2016) Decision-making in organizations: when to delegate and whom to delegate. Review of Economic Design, 20 (2). pp. 115-143.

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A production process involves a principal and two privately informed agents. Production requires coordinated decision making. It might be carried in a centralized organization or through delegated contracting in a hierarchical structure. We compare the performance of different organizational structures when renegotiation of initial contracts is possible. We show that delegated contracting always dominates centralization if the downstream contract between the agents is observable. Contracting (resp. control) should be delegated to the agent with the least (resp. most) important information. If downstream contracts are not observable, we obtain a tradeoff between centralization and delegation.

Item Type: Article
Language: English
Date: 2016
Refereed: Yes
Uncontrolled Keywords: Organizations, Mechanism design, Decentralization, incentives, Non-commitment
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 15 Dec 2016 15:21
Last Modified: 24 Jan 2019 00:14

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