This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Allocation of Decision-making Authority

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Milton Harris
Artur Raviv

Additional information is available for the following registered author(s):

Abstract

This paper addresses the question of what determines where in a firm’s hierarchy investment decisions are made. We present a simple model of a CEO and a division manager to analyze when the CEO will choose to allocate decision-making authority over an investment decision to a division manager. Both the CEO and the division manager have private information regarding the profit maximizing investment level. Because the division manager is assumed to have a preference for “empire”, neither manager will communicate her information fully to the other. We show that the probability of delegation increases with the importance of the division manager’s information and decreases with the importance of the CEO’s information. A somewhat counterintuitive result is that, in some circumstances, increases in agency problems result in increased willingness of the CEO to delegate the decision. We also characterize situations in which the CEO prefers to commit to an allocation of authority ex ante, instead of deciding based on her private information. Finally, even though the division manager is biased toward larger investments, we show that under certain conditions, the average investment will be smaller when the decision is delegated. These results help explain some findings in the empirical literature. A number of other empirical implications are developed. Copyright Springer 2005

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1007/s10679-005-2263-z
File Format: text/html
File Function:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by Springer in its journal Review of Finance.

Volume (Year): 9 (2005)
Issue (Month): 3 (09)
Pages: 353-383
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:eurfin:v:9:y:2005:i:3:p:353-383

Contact details of provider:
Web page: http://springerlink.metapress.com/link.asp?id=111870

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Other versions of this item:

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
  1. Silvia Marchesi & Laura Sabani & Axel Dreher, 2009. "Read my Lips: the Role of Information Transmission in multilateral reform design," Development Working Papers 274, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
    Other versions:
  2. Gabriel Jiménez & Vicente Salas-Fumás & Jesús Saurina, 2008. "Organizational distance and use of collateral for business loans," Banco de España Working Papers 0816, Banco de España. [Downloadable!]
  3. Oliver Board & Tiberiu Dragu, 2006. "Expert Advice with Multiple Decision Makers," Working Papers 242, University of Pittsburgh, Department of Economics, revised Jan 2006. [Downloadable!]
  4. Alonso, Ricardo & Dessein, Wouter & Matouschek, Niko, 2006. "When Does Coordination Require Centralization?," CEPR Discussion Papers 5802, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Jose Maria Liberti, 2004. "Initiative, Incentives and Soft Information. How Does Delegation Impact The Role of Bank Relationship Managers?," Finance 0404023, EconWPA. [Downloadable!]
  6. Tsung-Sheng Tsai & Yasunari Tamada, 2004. "Allocation of Decision-Making Authority with Principal's Reputation Concerns," Econometric Society 2004 Far Eastern Meetings 701, Econometric Society. [Downloadable!]
  7. Anthony Marino, 2006. "Exceptions to the Rules: Variances from Regulatory Standards," Journal of Regulatory Economics, Springer, vol. 29(2), pages 127-150, 03. [Downloadable!] (restricted)
  8. Holthausen, Cornelia & Rønde, Thomas, 2005. "Cooperation in International Banking Supervision," CEPR Discussion Papers 4990, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Silvia Marchesi & Laura Sabani & Axel Dreher, 2009. "Agency and Communication in IMF Conditional Lending: Theory and Empirical Evidence," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? LogEc provides statistical analysis about downloads from this service (and others).

This page was last updated on 2009-11-13.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.