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The value of information and optimal organization


  • Sergei Severinov


The article addresses the issue of optimal organization of production. I compare three organizational forms: centralization (one agent produces different inputs), decentralization (each of two agents produces a different input and contracts directly with the principal), and delegation (two agents produce different inputs, the principal contracts with one of them only). The optimal organizational form depends on the degree of complementarity/substitutability between the inputs in the final use. The degree of complementarity/substitutability also determines whether delegation is payoff equivalent to the two-agent mechanism from the point of view of the principal. In the context of delegation, I consider which of the two agents should serve as the primary contractor. I also address the issue of collusion between the agents in a decentralized organization and characterize the conditions under which a stake of collusion exists. Copyright (c)2008, RAND.

Suggested Citation

  • Sergei Severinov, 2008. "The value of information and optimal organization," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 238-265.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:238-265

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    References listed on IDEAS

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    6. Antoine Faure-Grimaud & Jean-Jacques Laffont & David Martimort, 2003. "Collusion, Delegation and Supervision with Soft Information," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 253-279.
    7. 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.
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    9. Jean-Jacques Laffont & David Martimort, 1998. "Collusion and Delegation," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 280-305, Summer.
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    Cited by:

    1. Dongsoo Shin & Roland Strausz, 2014. "Delegation and dynamic incentives," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 495-520, September.
    2. repec:eee:indorg:v:52:y:2017:i:c:p:133-164 is not listed on IDEAS
    3. Celik, Gorkem, 2004. "Counter Marginalization of Information Rents under Collusion," working papers celik-04-01-23-02-48-07, Vancouver School of Economics, revised 27 Jan 2008.
    4. Celik, Gorkem, 2009. "Mechanism design with collusive supervision," Journal of Economic Theory, Elsevier, vol. 144(1), pages 69-95, January.
    5. Te Bao & Yongqin Wang, 2012. "Incomplete contract, bargaining and optimal divisional structure," Journal of Economics, Springer, vol. 107(1), pages 81-96, September.
    6. Rosar, Frank, 2013. "Optimal procurement and outsourcing of production in small industries," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79812, Verein für Socialpolitik / German Economic Association.
    7. Tangerås, Thomas P., 2012. "Optimal transmission regulation of an integrated energy market," Energy Economics, Elsevier, vol. 34(5), pages 1644-1655.
    8. Litterscheid, Sina & Szalay, Dezsö, 2014. "Sequential, multidimensional screening," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100621, Verein für Socialpolitik / German Economic Association.
    9. Kim Weonseek & Koo Bonwoo, 2012. "A Patent System with a Contingent Delegation Fee under Asymmetric Information," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-18, May.
    10. Rosar, Frank, 2017. "Strategic outsourcing and optimal procurement," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 91-130.

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