Authority and Specialization under Informational Interdependence

I study the relationship between a firm’s organization and its ability to aggregate information under interdependence. The firm must adapt the design of two products to innovations over two attributes, such that information about each attribute affects the design of both products. Agents have access to imperfect information but must incur costs to obtain it. The principal can delegate decision-making authority to any agent, and such authority includes private communication channels with other players. I characterize the optimal organizational structure under informational spillovers. The possibility of specialization leads to three novel intuitions. First, the principal benefits from agents’ restricted access to information because it reduces profitable deviations from truthful communication. Second, an agent’s specialization depends on his preferences, the costs of acquiring information, and its expected influence on decisions. Third, delegation leads to suboptimal information aggregation because some agents’ acquisition decisions fail to internalize the interdependence.