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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 Berlin, School of Business & Economics in its series Discussion Papers with number 2005/21.

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Date of creation: 2005
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Handle: RePEc:zbw:fubsbe:200521

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Keywords: Authority; Decision Rights; Externalities; Incomplete Contracts; Imperfect Information; Theory of the Firm;

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References

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  1. Vijay Krishna & John Morgan, 2008. "Contracting for information under imperfect commitment," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 905-925.
  2. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
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  7. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, Econometric Society, vol. 69(1), pages 1-35, January.
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  16. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 2004. "Transferable control," ULB Institutional Repository 2013/9647, ULB -- Universite Libre de Bruxelles.
  17. Bester, Helmut, 2004. "Externalities and the Allocation of Decision Rights in the Theory of the Firm," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 23, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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  21. repec:wop:humbsf:2000-72 is not listed on IDEAS
  22. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, Econometric Society, vol. 69(4), pages 1077-98, July.
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Citations

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Cited by:
  1. Francesconi, Marco & Muthoo, Abhinay, 2006. "Control Rights in Public-Private Partnerships," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5733, C.E.P.R. Discussion Papers.
  2. Kerstin Puschke, . "Optimal Hierarchies with Diverse Decision-Makers," Papers, Departmental Working Papers 034, Departmental Working Papers.
  3. Bester, Helmut & Krähmer, Daniel, 2013. "Exit options and the allocation of authority," Discussion Papers 2013/5, Free University Berlin, School of Business & Economics.
  4. Lim, Wooyoung, 2012. "Selling authority," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 84(1), pages 393-415.
  5. Marco Francesconi & Abhinay Muthoo, 2011. "Control Rights In Complex Partnerships," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 9(3), pages 551-589, 06.
  6. Puschke, Kerstin, 2005. "The allocation of authority under limited liability," Discussion Papers 2005/25, Free University Berlin, School of Business & Economics.
  7. 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.
  8. Bester, Helmut & Krahmer, Daniel, 2007. "Delegation and Incentives," CEPR Discussion Papers, C.E.P.R. 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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