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Decision-making in organizations: when to delegate and whom to delegate

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Listed:
  • Stefan Ambec

    (Université de Toulouse)

  • Michel Poitevin

    (Université de Montréal)

Abstract

A production process involves a principal and two privately informed agents. Production requires coordinated decision making. It might be carried in a centralized organization or through delegated contracting in a hierarchical structure. We compare the performance of different organizational structures when renegotiation of initial contracts is possible. We show that delegated contracting always dominates centralization if the downstream contract between the agents is observable. Contracting (resp. control) should be delegated to the agent with the least (resp. most) important information. If downstream contracts are not observable, we obtain a tradeoff between centralization and delegation.

Suggested Citation

  • Stefan Ambec & Michel Poitevin, 2016. "Decision-making in organizations: when to delegate and whom to delegate," Review of Economic Design, Springer;Society for Economic Design, vol. 20(2), pages 115-143, June.
    • Handle: RePEc:spr:reecde:v:20:y:2016:i:2:d:10.1007_s10058-015-0185-6
    DOI: 10.1007/s10058-015-0185-6
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    More about this item

    Keywords

    Organizations; Mechanism design; Decentralization; Incentives; Non-commitment;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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