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Authority and communication in firms

Author

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  • Katayama, Hajime
  • Meagher, Kieron J.
  • Wait, Andrew

Abstract

We show that decision making in organizations is typically more complicated than simply choosing either to delegate or to centralize. Firms have to consider not only the level at which a decision is made (authority location) but also how many people are involved (authority diffusion), and the type of communication. Utilizing a unique data set, we estimate a latent-class model to identify frequently adopted combinations of decision-making rights and communication across different hierarchical levels relating to the implementation of a significant change. We identify four typical authority/communication structures that can be loosely categorized as: authoritarian centralization; team decision making; consultative centralization; and decentralization. We then explore the relationships between these four authority/communication structures and other characteristics of the firm, such as the size of the organization, worker skills, long-term employer-employee relationships, individual and group incentives and how close the firm is to the productivity frontier. These results are broadly consistent with recent advances in theory, although no one model is rich enough to fully describe all our findings.

Suggested Citation

  • Katayama, Hajime & Meagher, Kieron J. & Wait, Andrew, 2018. "Authority and communication in firms," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 315-348.
  • Handle: RePEc:eee:jeborg:v:155:y:2018:i:c:p:315-348
    DOI: 10.1016/j.jebo.2018.09.005
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    Cited by:

    1. Laura Alfaro & Nicholas Bloom & Paola Conconi & Harald Fadinger & Patrick Legros & Andrew F. Newman & Raffaella Sadun & John Van Reenen, 2017. "Come Together: Firm Boundaries and Delegation," Harvard Business School Working Papers 18-051, Harvard Business School, revised May 2019.
    2. Yaser Sobhanifard & Seyed Mohammad Saleh Hashemi Apourvari, 2022. "Environmental sustainable development through modeling and ranking of influential factors of reference groups on consumer behavior of green products: The case of Iran," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 1294-1312, October.
    3. Jun Xie & Wataru Nozawa & Shunsuke Managi, 2020. "The role of women on boards in corporate environmental strategy and financial performance: A global outlook," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(5), pages 2044-2059, September.
    4. Rumeng Cui & Zhong Ma & Longfeng Wang, 2022. "Allocation of Decision Rights and CSR Disclosure: Evidence from Listed Business Groups in China," Sustainability, MDPI, vol. 14(7), pages 1-20, March.
    5. Kieron Meagher & Andrew Wait, 2023. "Trust in management in organizations," IZA World of Labor, Institute of Labor Economics (IZA), pages 507-507, April.

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    More about this item

    Keywords

    Decision making; Authority; Consultation; Centralization; Delegation; Relational contracting; Organizational structure; Latent-class model;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other

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