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Organizational Structure as the Channeling of Boundedly Rational Pre-play Communication

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Author Info
Ellingsen, Tore () (Dept. of Economics, Stockholm School of Economics)
Östling, Robert () (Dept. of Economics, Stockholm School of Economics)

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Abstract

We model organizational decision making as costless pre-play communication. Decision making is called authoritarian if only one player is allowed to speak and consensual if all players are allowed to speak. Players are assumed to have limited cognitive capacity and we characterize their behavior under each decision making regime for two different cognitive hierarchy models. Our results suggest that authoritarian decision making is optimal when players have conflicting preferences over the set of Nash equilibrium outcomes, whereas consensual decision making is optimal when players have congruent preferences over this set. The intuition is that authoritarian decision making avoids conflict, but sometimes creates insufficient mutual trust to implement socially optimal outcomes.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 634.

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Length: 35 pages
Date of creation: 25 Sep 2006
Date of revision:
Handle: RePEc:hhs:hastef:0634

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Related research
Keywords: Organizational decision making; coordination games; communication; cognitive hierarchy models;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
M54 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Management

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References listed on IDEAS
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.:
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    Other versions:
  2. Blume, Andreas & Ortmann, Andreas, 2007. "The effects of costless pre-play communication: Experimental evidence from games with Pareto-ranked equilibria," Journal of Economic Theory, Elsevier, vol. 132(1), pages 274-290, January. [Downloadable!] (restricted)
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    Other versions:
  11. COOPER, R. & DEJONG, D.V. & FORSYTHE, R. & Tom Ross, 1989. "Communication In Coordination Games," Carleton Industrial Organization Research Unit (CIORU) 89-07, Carleton University, Department of Economics.
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  16. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December. [Downloadable!] (restricted)
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  18. Akihiko Matsui, 1989. "Cheap Talk and Cooperation in the Society," Discussion Papers 848, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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    Other versions:
  24. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring. [Downloadable!] (restricted)
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    Other versions:
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Full references

Cited by:
(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. Erik Wengström, 2008. "Price competition, level-k theory and communication," Economics Bulletin, Economics Bulletin, vol. 3(66), pages 1-15. [Downloadable!]
  2. Wengström, Erik, 2007. "Setting the Anchor: Price Competition, Level-n Theory and Communication," Working Papers 2007:6, Lund University, Department of Economics. [Downloadable!]
  3. Ellingsen, Tore & Östling, Robert, 2007. "When Does Communication Improve Coordination?," Working Paper Series in Economics and Finance 680, Stockholm School of Economics, revised 19 Jun 2008. [Downloadable!]
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