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The value of information and optimal organization

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  • Sergei Severinov
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    Abstract

    The article addresses the issue of optimal organization of production. I compare three organizational forms: centralization (one agent produces different inputs), decentralization (each of two agents produces a different input and contracts directly with the principal), and delegation (two agents produce different inputs, the principal contracts with one of them only). The optimal organizational form depends on the degree of complementarity/substitutability between the inputs in the final use. The degree of complementarity/substitutability also determines whether delegation is payoff equivalent to the two-agent mechanism from the point of view of the principal. In the context of delegation, I consider which of the two agents should serve as the primary contractor. I also address the issue of collusion between the agents in a decentralized organization and characterize the conditions under which a stake of collusion exists. Copyright (c)2008, RAND.

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    Bibliographic Info

    Article provided by RAND Corporation in its journal The RAND Journal of Economics.

    Volume (Year): 39 (2008)
    Issue (Month): 1 ()
    Pages: 238-265

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    Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:238-265

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    Cited by:
    1. Rosar, Frank, 2013. "Optimal procurement and outsourcing of production in small industries," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79812, Verein für Socialpolitik / German Economic Association.
    2. Celik, Gorkem, 2004. "Mechanism Design with Collusive Supervision," Microeconomics.ca working papers celik-04-09-13-05-42-19, Vancouver School of Economics, revised 06 Aug 2008.
    3. Tangerås, Thomas P., 2012. "Optimal transmission regulation of an integrated energy market," Energy Economics, Elsevier, vol. 34(5), pages 1644-1655.
    4. Te Bao & Yongqin Wang, 2012. "Incomplete contract, bargaining and optimal divisional structure," Journal of Economics, Springer, vol. 107(1), pages 81-96, September.
    5. Celik, Gorkem, 2004. "Counter Marginalization of Information Rents under Collusion," Microeconomics.ca working papers celik-04-01-23-02-48-07, Vancouver School of Economics, revised 27 Jan 2008.
    6. Te Bao & Yongqin Wang, 2009. "Incomplete Contract and Divisional Structures," Tinbergen Institute Discussion Papers 09-075/1, Tinbergen Institute.

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