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Truth Be Told An Experimental Study of Communication and Centralization

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  • Jordi Brandts
  • David J. Cooper

Abstract

We study the tradeoffs between centralized and decentralized management using a new experimental game, the decentralization game. Product types for two divisions are either chosen independently by the divisions (decentralization) or imposed by a central manager (centralization). Centralization makes it easier to coordinate the divisions’ product types but more difficult to take advantage of the divisions’ private information. We find that total surplus is highest when centralization is combined with free-form chat between the three players. This high performance occurs because divisions almost never lie about their private information, yielding unambiguous transmission of information from divisions to the central manager.

Suggested Citation

  • Jordi Brandts & David J. Cooper, 2018. "Truth Be Told An Experimental Study of Communication and Centralization," Working Papers 1046, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:1046
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    References listed on IDEAS

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    More about this item

    Keywords

    Coordination; experiments; Organizations; asymmetric Information;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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