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Budgeting and Hierarchical Control

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Author Info
Mookherjee, D.
Reichelstein, S.

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Abstract

This 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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Publisher Info
Paper provided by Boston University - Industry Studies Programme in its series Papers with number 71.

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Length: 31 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:fth:bostin:71

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Postal: Boston University, Industry Studies Program; Department of Economics, 270 Bay Road, Boston, Massachusetts 02215.
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Web page: http://www.bu.edu/econ/isp/
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Related research
Keywords: FINANCIAL MARKET ENTERPRISES MANAGEMENT

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Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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  1. Jonathan Treussard, 2005. "Life-Cycle Consumption Plans and Portfolio Policies in a Heath-Jarrow-Morton Economy," Boston University - Department of Economics - Working Papers Series WP2005-033, Boston University - Department of Economics. [Downloadable!]
  2. Andreas Roider, 2003. "Delegation of Authority as an Optimal (In)complete Contract," Bonn Econ Discussion Papers bgse8_2003, University of Bonn, Germany, revised Aug 2004. [Downloadable!]
    Other versions:
  3. Grüner, Hans Peter, 2007. "Information Technology, Efficient Restructuring and the Productivity Puzzle," CEPR Discussion Papers 6109, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Grüner, Hans Peter, 2007. "Protocol Design and (De-)Centralization," CEPR Discussion Papers 6357, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Ulf Schiller, 1997. "Decentral Information Acquisition and the Value of Cost Observability," Game Theory and Information 9710003, EconWPA. [Downloadable!]
  6. Hans Peter Grüner & Elisabeth Schulte, 2004. "Speed and Quality of Collective Decision Making: Incentives for," Levine's Bibliography 122247000000000417, UCLA Department of Economics. [Downloadable!]
  7. Sandeep Baliga & Tomas Sjostrom, 1998. "Decentralization and Collusion," Discussion Papers 1210, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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