Advanced Search
MyIDEAS: Login to save this paper or follow this series

Information, Authority, and Corporate Hierarchies

Contents:

Author Info

  • Choe, Chongwoo
  • In-Uck, Park

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 benets of delegation stem from either efficiency gains or reduction in rent to the information gatherer.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/21865/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21865.

as in new window
Length:
Date of creation: 10 Jan 2010
Date of revision:
Handle: RePEc:pra:mprapa:21865

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

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

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 37, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Richard J. Gilbert & Michael H. Riordan, 1995. "Regulating Complementary Products: A Comparative Institutional Analysis," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 243-256, Summer.
  3. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 91-16, Department of Economics at the University of Washington.
  4. Khalil, F & Rochet, J-C, 1997. "Strategic Information Gathering Before a Contract is Offered," Working Papers, University of Washington, Department of Economics 97-15, University of Washington, Department of Economics.
  5. Alonso, Ricardo & Dessein, Wouter & Matouschek, Niko, 2006. "When Does Coordination Require Centralization?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5802, C.E.P.R. Discussion Papers.
  6. Chongwoo Choe & Shingo Ishiguro, 2009. "On The (Sub) Optimality Of Multi-Tier Hierarchies: Coordination Versus Motivation," Development Research Unit Working Paper Series, Monash University, Department of Economics 18/08, Monash University, Department of Economics.
  7. Heikki Rantakari, 2008. "Governing Adaptation -super-1," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1257-1285.
  8. Itoh, Hideshi, 1992. "Cooperation in Hierarchical Organizations: An Incentive Perspective," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 8(2), pages 321-45, April.
  9. Oliver Hart & John Moore, 2004. "On the Design of Hierarchies: Coordination versus Specialization," ESE Discussion Papers 117, Edinburgh School of Economics, University of Edinburgh.
  10. McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 4(3), pages 399-426, Fall.
  11. Melumad, Nahum & Mookherjee, Dilip & Reichelstein, Stefan, 1992. "A theory of responsibility centers," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 15(4), pages 445-484, December.
  12. Susan Athey & John Roberts, 2001. "Organizational Design: Decision Rights and Incentive Contracts," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 200-205, May.
  13. Baliga, Sandeep & Sjostrom, Tomas, 1998. "Decentralization and Collusion," Journal of Economic Theory, Elsevier, Elsevier, vol. 83(2), pages 196-232, December.
  14. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
  15. Van Zandt, Timothy, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(3), pages 633-58, July.
  16. Melamad, N. & Mookherjee, D. & Reichelstein, S., 1996. "Contract Complexity, Incentives and the Value of Delegation," Papers, Boston University - Industry Studies Programme 70, Boston University - Industry Studies Programme.
  17. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
  18. Faure-Grimaud, Antoine & Laffont, Jean-Jacques & Martimort, David, 2003. "Collusion, Delegation and Supervision with Soft Information," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 167, Institut d'Économie Industrielle (IDEI), Toulouse.
  19. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, Econometric Society, vol. 61(5), pages 1109-46, September.
  20. Dessein, Wouter & Garicano, Luis & Gertner, Robert, 2007. "Organizing for Synergies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6019, C.E.P.R. Discussion Papers.
  21. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, American Finance Association, vol. 54(2), pages 471-517, 04.
  22. Qian, Yingyi, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 527-44, July.
  23. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 26(2), pages 301-25, June.
  24. Nahum D. Melumad & Dilip Mookherjee & Stefan Reichelstein, 1995. "Hierarchical Decentralization of Incentive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 654-672, Winter.
  25. Friebel, Guido & Raith, Michael, 2006. "Resource Allocation and Firm Scope," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5763, C.E.P.R. Discussion Papers.
  26. Dilip Mookherjee & Masatoshi Tsumagari, 2004. "The Organization of Supplier Networks: Effects of Delegation and Intermediation," Econometrica, Econometric Society, Econometric Society, vol. 72(4), pages 1179-1219, 07.
  27. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 123.
  28. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(2), pages 225-64, April.
  29. Core, John E. & Guay, Wayne R., 2001. "Stock option plans for non-executive employees," Journal of Financial Economics, Elsevier, Elsevier, vol. 61(2), pages 253-287, August.
  30. Cremer, Jacques & Khalil, Fahad, 1994. "Gathering information before the contract is offered: The case with two states of nature," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 675-682, April.
  31. Itoh Hideshi, 1993. "Coalitions, Incentives, and Risk Sharing," Journal of Economic Theory, Elsevier, Elsevier, vol. 60(2), pages 410-427, August.
  32. Perez-Castrillo, J.D. & Macho-Stadler, I., 1992. "Centralized and Decentralized Contracts in a Moral Hazad Environment," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 179.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:21865. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.