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Centralized and Decentralized Decision Making in Organizations

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Author Info
Jan Zabojnik (University of Southern California and Queen's University)

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Abstract

This article identifies a new type of cost associated with centralization. If workers are liquidity constrained, it may be less costly to motivate a worker who is allowed to work on his own idea than a worker who is forced to follow the manager's idea. Thus, it may be optimal to let workers decide on the method for doing their job even if managers have better information. This conclusion holds even if more general contracts are considered that are based on communication of information between the worker and the manager, as long as these general contracts are not entirely costless.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JOLE020101
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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 20 (2002)
Issue (Month): 1 (January)
Pages: 1-22
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Handle: RePEc:ucp:jlabec:v:20:y:2002:i:1:p:1-22

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  1. Czarnitzki, Dirk & Kraft, Kornelius, 2007. "Mitarbeiteranreizsysteme und Innovationserfolg," ZEW Discussion Papers 07-075, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. Anthony Marino & Jan Zabojnik, 2006. "Work-Related Perks, Agency Problems, and Optimal Incentive Contracts," Working Papers 1107, Queen's University, Department of Economics. [Downloadable!]
    Other versions:
  3. Kameliia Petrova, 2005. "Does Motivation Trigger Autonomy, or Vice Versa?," Game Theory and Information 0510004, EconWPA, revised 13 Oct 2005. [Downloadable!]
  4. Marcoul, Philippe, 2003. "A Theory of Advice Based on Information Search Incentives," Staff General Research Papers 10357, Iowa State University, Department of Economics. [Downloadable!]
  5. Hans K. Hvide & Tore Leite, 2003. "A Theory of Capital Structure with Strategic Defaults and Priority Violations," Finance 0311003, EconWPA. [Downloadable!]
    Other versions:
  6. Anthony M. Marino & John G. Matsusaka & Jan Zabojnik, 2006. "Disobedience and Authority," Working Papers 1109, Queen's University, Department of Economics. [Downloadable!]
  7. Maria De Paola & Vincenzo Scoppa, 2009. "Task assignment, incentives and technological factors," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 43-55. [Downloadable!]
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