Optimal hierarchies with diverse decision-makers
Abstract
We analyze the optimal decision-making hierarchy in an organization when decision-makers of limited liability have preferences conflicting with the organizations objective and exert externalities on their counterparts. In a horizontal hierarchy, every decision is made by a different agent. In a vertical hierarchy, one agent is in charge of all decisions. Only this agent is incentivized. This advantage is outweighed if there is a horizontal hierarchy so that the decision-makers preferences are close to the organizations objective with respect to the decision they are in charge of but far from the organizations objective for the other decisions. --Download Info
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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2007/10.Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:zbw:fubsbe:200710
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Related research
Keywords: Authority; Decision Rights; Incomplete Contracts;Other versions of this item:
- Kerstin Puschke, . "Optimal Hierarchies with Diverse Decision-Makers," Papers 034, Departmental Working Papers.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
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