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Centralized and Decentralized Decision Making in Organizations

Author

Listed:
  • Jan Zabojnik

    (University of Southern California and Queen's University)

Abstract

This article identifies a new type of cost associated with centralization. If workers are liquidity constrained, it may be less costly to motivate a worker who is allowed to work on his own idea than a worker who is forced to follow the manager's idea. Thus, it may be optimal to let workers decide on the method for doing their job even if managers have better information. This conclusion holds even if more general contracts are considered that are based on communication of information between the worker and the manager, as long as these general contracts are not entirely costless.

Suggested Citation

  • Jan Zabojnik, 2002. "Centralized and Decentralized Decision Making in Organizations," Journal of Labor Economics, University of Chicago Press, vol. 20(1), pages 1-22, January.
    • Handle: RePEc:ucp:jlabec:v:20:y:2002:i:1:p:1-22
    DOI: 10.1086/323929
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    References listed on IDEAS

    as
    1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    2. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
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