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Can the Theory of Incentives Explain Decentralization?

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  • Michel Poitevin

Abstract

This survey presents within a single model three theories of decentralization of decision-making within organizations based on private information and incentives. Renegotiation, collusion, and limits on communication are three sufficient conditions for decentralization to be optimal. Cet article présente dans un cadre unifié un survol de trois théories de la décentralisation de la prise de décision dans les organisations. Ces théories reposent sur la présence d'information privée et des incitations qui en découlent. La renégociation, la collusion et les limites à la communication représentent trois conditions suffisantes pouvant expliquer l'optimalité de la décentralisation.

Suggested Citation

  • Michel Poitevin, 2000. "Can the Theory of Incentives Explain Decentralization?," CIRANO Working Papers 2000s-32, CIRANO.
  • Handle: RePEc:cir:cirwor:2000s-32
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    References listed on IDEAS

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    3. Benoit A. Aubert & Michel Patry & Suzanne Rivard & Heather Smith, 2000. "IT Outsourcing Risk Management at British Petroleum," CIRANO Working Papers 2000s-31, CIRANO.
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    Cited by:

    1. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
    2. Andreas Roider, 2006. "Delegation of Authority as an Optimal (In)Complete Contract," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(3), pages 391-411, September.
    3. GRECO, Luciano, 2003. "Optimal grants under asymmetric information: federalism versus devolution," CORE Discussion Papers 2003024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Dilip Mookherjee, 2008. "The 2007 Nobel Memorial Prize in Mechanism Design Theory," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 237-260, June.
    5. Jelovac, Izabela & Macho-Stadler, Ines, 2002. "Comparing organizational structures in health services," Journal of Economic Behavior & Organization, Elsevier, vol. 49(4), pages 501-522, December.
    6. Dongsoo Shin & Roland Strausz, 2014. "Delegation and dynamic incentives," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 495-520, September.
    7. Roider, Andreas, 2007. "Risk, Delegation, and Project Scope," IZA Discussion Papers 3117, Institute for the Study of Labor (IZA).
    8. Ambec, S., 2003. "A theory of authority in bilateral contracting," Working Papers 200303, Grenoble Applied Economics Laboratory (GAEL).
    9. Enis Kayis & Feryal Erhun & Erica L. Plambeck, 2013. "Delegation vs. Control of Component Procurement Under Asymmetric Cost Information and Simple Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 15(1), pages 45-56, April.
    10. Canton, Joan & De Cara, Stéphane & Jayet, Pierre-Alain, 2009. "Agri-environmental schemes: Adverse selection, information structure and delegation," Ecological Economics, Elsevier, vol. 68(7), pages 2114-2121, May.
    11. 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.
    12. Kei Kawakami, 2016. "Posterior renegotiation-proofness in a two-person decision problem," International Journal of Game Theory, Springer;Game Theory Society, vol. 45(4), pages 893-931, November.
    13. Nobuo Akai & Masayo Hosoi & Yukihiro Nishimura, 2009. "Fiscal Decentralization And Economic Volatility: Evidence From State-Level Cross-Section Data Of The Usa," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 223-235.
    14. Otto H. Swank & Bauke Visser, 2015. "Learning from Others? Decision Rights, Strategic Communication, and Reputational Concerns," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 109-149, November.
    15. Andreas Roider, 2009. "Delegation, Risk, and Project Scope," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(2), pages 193-209, June.
    16. Theilen, Bernd, 2009. "Decentralization and the Gains from Monitoring," Working Papers 2072/42863, Universitat Rovira i Virgili, Department of Economics.
    17. Jonathan Treussard, 2005. "Life-Cycle Consumption Plans and Portfolio Policies in a Heath-Jarrow-Morton Economy," Boston University - Department of Economics - Working Papers Series WP2005-033, Boston University - Department of Economics.
    18. Theilen Bernd, 2009. "Monitoring Gains and Decentralization," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-26, September.
    19. Morasch, Karl, 2003. "Deciding about (de-)centralization of industrial policy: Delegation by a central authority vs. bargaining of regional governments," Working Papers in Economics 2003,3, Bundeswehr University Munich, Economic Research Group.
    20. AMBEC Stefan & POITEVIN Michel, 2008. "Marketing vs Engineering: Who Should Decide ?," LERNA Working Papers 08.22.266, LERNA, University of Toulouse.
    21. Pérez, Jessica Helen & Iranzo Sancho, Susana, 2012. "Determinants of Decentralization within the Firm: Some Empirical Evidence from Spanish Small and Medium- Sized Enterprise," Working Papers 2072/211755, Universitat Rovira i Virgili, Department of Economics.
    22. Timothy Van Zandt, 2008. "The Interplay Between Incentives and Communication Complexity in Mechanism Design," 2008 Meeting Papers 480, Society for Economic Dynamics.

    More about this item

    Keywords

    Organizational design; private information; decentralization; Design organisationnel; information privée; décentralisation;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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