Sunflower Management and Capital Budgeting
In organizations, ideas are often delegated for evaluation as a means of efficiently aggregating multiple information signals. However, those who delegate often find it impossible to separate the evaluation of the ideas they delegate from the evaluation of abilities of those delegated the task of assessing these ideas. This commingling of the assessment of the idea with that of the individual agent generates a tendency for the agent to ignore his or her own information and instead attempt to confirm the superior's prior belief. We refer to this as sunflower management and examine its effects on capital budgeting practices.
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- Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-877, October.
- Persons, John C., 1997. "Liars Never Prosper? How Management Misrepresentation Reduces Monitoring Costs," Journal of Financial Intermediation, Elsevier, vol. 6(4), pages 269-306, October.
- Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
- Bengt Holmstrom & Joan Ricart i Costa, 1986. "Managerial Incentives and Capital Management," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 835-860.
- Prendergast, Canice, 1993. "A Theory of "Yes Men."," American Economic Review, American Economic Association, vol. 83(4), pages 757-770, September.
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