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Decision-making in organizations: when to delegate and whom to delegate

Author

Listed:
  • Stefan Ambec

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Michel Poitevin

    (UdeM - Université de Montréal)

Abstract

A production process involves a principal and two privately informed agents. Production requires coordinated decision making. It might be carried in a centralized organization or through delegated contracting in a hierarchical structure. We compare the performance of different organizational structures when renegotiation of initial contracts is possible. We show that delegated contracting always dominates centralization if the downstream contract between the agents is observable. Contracting (resp. control) should be delegated to the agent with the least (resp. most) important information. If downstream contracts are not observable, we obtain a tradeoff between centralization and delegation.

Suggested Citation

  • Stefan Ambec & Michel Poitevin, 2016. "Decision-making in organizations: when to delegate and whom to delegate," Post-Print hal-02638008, HAL.
    • Handle: RePEc:hal:journl:hal-02638008
    DOI: 10.1007/s10058-015-0185-6
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    References listed on IDEAS

    as
    1. Michel Poitevin, 2000. "Can the theory of incentives explain decentralization?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(4), pages 878-906, November.
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    More about this item

    Keywords

    organization; mechanism design; decentralization; incentive; non-commitment;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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