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Why Less Informed Managers May Be Better Leaders


  • Sergei Guriev

    () (New Economic School (Moscow))

  • Anton Suvorov

    () (New Economic School (Moscow))


Unlike the textbook model of a top manager being an omniscient planner, coordinator and monitor, the real life managers suffer from discontinuity, lack of systematic information collection and limited time for analysis and re?ection. Why do not business leaders set up their organizations in the way that would allow themselves to make informed choices based on thorough analysis? We argue that in some situations top managers may benefit from being less informed. In our model, additional information raises ex post flexibility of the decision-makers which may undermine the ex ante incentives of their subordinates to make specific investments. The subordinates expect less informed leaders to be more committed to the original strategy which increases the returns to the strategy-specific investments. We show that this effect is more likely to take place in more predictable environments; we also discuss how this effect depends on the hierarchical structure of the organization.

Suggested Citation

  • Sergei Guriev & Anton Suvorov, 2010. "Why Less Informed Managers May Be Better Leaders," Working Papers w0142, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0142

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    References listed on IDEAS

    1. Andrea Prat, 2005. "The Wrong Kind of Transparency," American Economic Review, American Economic Association, vol. 95(3), pages 862-877, June.
    2. Patrick Bolton & Markus K. Brunnermeier & Laura Veldkamp, 2008. "Leadership, Coordination and Mission-Driven Management," NBER Working Papers 14339, National Bureau of Economic Research, Inc.
    3. Hermalin, Benjamin E, 1998. "Toward an Economic Theory of Leadership: Leading by Example," American Economic Review, American Economic Association, vol. 88(5), pages 1188-1206, December.
    4. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
    5. Eric Van den Steen, 2005. "Organizational Beliefs and Managerial Vision," Journal of Law, Economics, and Organization, Oxford University Press, vol. 21(1), pages 256-283, April.
    6. Jordi Blanes I Vidal & Marc Möller, 2007. "When Should Leaders Share Information with Their Subordinates?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 251-283, June.
    7. Julio Rotemberg & Garth Saloner, 2000. "Visionaries, Managers, and Strategic Direction," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 693-716, Winter.
    8. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    9. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
    10. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Are ignorant managers better?
      by Economic Logician in Economic Logic on 2010-06-03 19:33:00

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    leadership; commitment; organizational structure;

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