Contract Renegotiation and Organizational Design
AbstractThis paper studies the implications of non-commitment for organizational design. An organizational form must trade-off between the coordination benefits associated with the centralization of information and its associated costs in terms of renegotiation. The analysis makes precise what these benefits and costs are. First, I characterize renegotiation-proof allocations for organizational forms that differ in the amount of decentralization that they support. Second, I compare these different organizational forms. The analysis shown that (1) complete decentralization of decision-making is always weakly dominated by a more centralized structures when information is dispersed in the organization; (2) the player with the most important or relevant information should be the decision-maker.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1135.
Date of creation: Jul 1995
Date of revision:
Contact details of provider:
Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Web page: http://www.kellogg.northwestern.edu/research/math/
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Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
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