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Externalities, Communication and the Allocation of Decision Rights

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Author Info
Bester, Helmut

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Abstract

This paper views authority as the right to undertake decisions that impose externalities on other members of the organization. When only decision rights can be contractually assigned to one of the organization's stakeholders, the optimal assignment minimizes the resulting inefficiencies by giving control rights to the party with the highest stake in the organization's decisions. Under asymmetric information, the efficient allocation of authority depends on the communication of private information. In the case of multiple decision areas, divided control rights may enhance organizational efficiency unless there exist complementarities between different decisions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5391.

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Date of creation: Nov 2005
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Handle: RePEc:cpr:ceprdp:5391

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Related research
Keywords: authority; decision rights; externalities; imperfect information; incomplete contracts; theory of the firm;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
P14 - Economic Systems - - Capitalist Systems - - - Property Rights

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References listed on IDEAS
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    Other versions:
  3. Helmut Bester & Roland Strausz, 2003. "Contracting with Imperfect Commitment and Noisy Communication," Discussion Papers 2, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
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(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. Marco Francesconi & Abhinay Muthoo, 2006. "Control Rights in Public-Private Partnerships," IZA Discussion Papers 2143, Institute for the Study of Labor (IZA). [Downloadable!]
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