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Externalities, Communication and the Allocation of Decision Rights

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  • Bester, Helmut

Abstract

This paper views authority as the right to undertake decisions that impose externalities on other members of the organization. When only decision rights can be contractually assigned to one of the organization’s stakeholders, the optimal assignment minimizes the resulting inefficiencies by giving control rights to the party with the highest stake in the organization’s decisions. Under asymmetric information, the efficient allocation of authority depends on the communication of private information. In the case of multiple decision areas, divided control rights may enhance organizational efficiency unless there exist complementarities between different decisions.

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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 69.

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Date of creation: Nov 2005
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Handle: RePEc:trf:wpaper:69

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Keywords: Authority; Decision Rights; Externalities; Incomplete Contracts;

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References

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Citations

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Cited by:
  1. Bester, Helmut & Krähmer, Daniel, 2013. "Exit Options and the Allocation of Authority," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 401, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Francesconi, Marco & Muthoo, Abhinay, 2006. "Control Rights in Public-Private Partnerships," CEPR Discussion Papers 5733, C.E.P.R. Discussion Papers.
  3. Francesconi, Marco & Muthoo, Abhinay, 2010. "Control Rights in Complex Partnerships," The Warwick Economics Research Paper Series (TWERPS) 933, University of Warwick, Department of Economics.
  4. Kovác, Eugen & Krähmer, Daniel, 2013. "Optimal Sequential Delegation," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 427, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Kerstin Puschke, . "The Allocation of Authority under Limited Liability," Papers 029, Departmental Working Papers.
  6. Puschke, Kerstin, 2007. "Optimal hierarchies with diverse decision-makers," Discussion Papers 2007/10, Free University Berlin, School of Business & Economics.
  7. Lim, Wooyoung, 2012. "Selling authority," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 393-415.
  8. Bester, Helmut & Krahmer, Daniel, 2007. "Delegation and Incentives," CEPR Discussion Papers 6042, C.E.P.R. Discussion Papers.
  9. Luigi Marengo & Corrado Pasquali, 2010. "How to get what you want when you do not know what you want. A model of incentives, organizational structure and learning," LEM Papers Series 2010/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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