Budgeting and Hierarchical Control
AbstractThis paper develops a model of budgeting in hierarchical organizations. Each agent (manager) in the hierarchy receives a budget for a task; based on his own information, the agent assigns tasks and budgets to his subordinates, who, in turn, do the same for their subordinates and so forth. Each department's performance is measured by the difference between budgeted and actual cost. In this setting we show that a particular budget mechanism is optimal in terms of the incentives it creates and the coordination it achieves.
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Bibliographic InfoPaper provided by Boston University - Industry Studies Programme in its series Papers with number 0071.
Date of creation: Sep 1996
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Postal: Boston University, Industry Studies Program; Department of Economics, 270 Bay Road, Boston, Massachusetts 02215.
Web page: http://www.bu.edu/econ/isp/
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- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
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