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Information, Authority, and Corporate Hierarchies

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  • Chongwoo Choe
  • In-Uck Park
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    Abstract

    In a typical corporate hierarchy, the manager is delegated the authority to make strategic decisions, and to contract with other employees. By studying a model with one principal and two agents where one agent can gather information that is valuable for the principal's project choice and the other agent provides effort to the chosen project, we study when the principal can benefit from such delegation relative to centralization. We show that beneficial delegation is possible when complete contracts cannot be written, and delegation of authority should necessarily be to the information gatherer. The benefits of delegation stem from either efficiency gains or reduction in rent to the information gatherer.

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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2010/0310informationchoepark.pdf
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    Bibliographic Info

    Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 03-10.

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    Length: 42 pages
    Date of creation: May 2010
    Date of revision:
    Handle: RePEc:mos:moswps:2010-03

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    Postal: Department of Economics, Monash University, Victoria 3800, Australia
    Phone: +61-3-9905-2493
    Fax: +61-3-9905-5476
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    Web page: http://www.buseco.monash.edu.au/eco/
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    Web: http://www.buseco.monash.edu.au/eco/research/papers/

    Related research

    Keywords: Corporate hierarchies; information gathering; delegation; centralization;

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    Cited by:
    1. Strulik, Holger & Prettner, Klaus & Prskawetz, Alexia, 2012. "The past and future of knowledge-based growth," Center for European, Governance and Economic Development Research Discussion Papers 140, University of Goettingen, Department of Economics.
    2. Colin Davis & Ken-ichi Hashimoto, 2012. "R&D Subsidies, International Knowledge Dispersion, and Fully Endogenous Productivity Growth," Discussion Papers 1214, Graduate School of Economics, Kobe University.
    3. David I. Stern & Astrid Kander, 2011. "The Role of Energy in the Industrial Revolution and Modern Economic Growth," CAMA Working Papers 2011-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. Holger Strulik, 2012. "From Worship to Worldly Pleasures: Secularization and Long-Run Economic Growth," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 116, Courant Research Centre PEG.
    5. Strulik, Holger & Prettner, Klaus & Prskawetz, Alexia, 2012. "The past and future of knowledge-based growth," Center for European, Governance and Economic Development Research Discussion Papers 140, University of Goettingen, Department of Economics.
    6. Dalgaard, Carl-Johan & Strulik, Holger, 2012. "Physiology and Development: Why the West is Taller than the Rest," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-494, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    7. John Foster, 2013. "Energy, Knowledge and Economic Growth," Energy Economics and Management Group Working Papers 3-2013, School of Economics, University of Queensland, Australia.

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