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Rational Inattention and Organizational Focus

Author

Listed:
  • Dessein, Wouter
  • Galeotti, Andrea
  • Santos, Tano

Abstract

We examine the allocation of scarce attention in team production. Each team member is in charge of a specialized task, which must be adapted to a privately observed shock and coordinated with other tasks. Coordination requires that agents pay attention to each other, but attention is in limited supply. We show that when attention is scarce, organizational focus and leadership naturally arise as a response to organizational trade-offs between coordination and adaptation. At the optimum, all attention is evenly allocated to a select number of "leaders." The organization then excels in a small number of focal tasks at the expense of all others. Our results shed light on the importance of leadership, strategy and “core competences,” as well as new trends in organization design. We also derive implications for the optimal size or “scope” of organizations. Surprisingly, improvements in communication technology may result in smaller but more adaptive organizations.

Suggested Citation

  • Dessein, Wouter & Galeotti, Andrea & Santos, Tano, 2013. "Rational Inattention and Organizational Focus," CEPR Discussion Papers 9395, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9395
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    References listed on IDEAS

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    1. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    2. Maria Guadalupe & Hongyi Li & Julie Wulf, 2014. "Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management," Management Science, INFORMS, vol. 60(4), pages 824-844, April.
    3. Jacques Cremer, 1980. "A Partial Theory of the Optimal Organization of a Bureaucracy," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 683-693, Autumn.
    4. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    5. Galeotti, Andrea & Ghiglino, Christian & Squintani, Francesco, 2013. "Strategic information transmission networks," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1751-1769.
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    Cited by:

    1. Calvó-Armengol, Antoni & de Martí, Joan & Prat, Andrea, 2015. "Communication and influence," Theoretical Economics, Econometric Society, vol. 10(2), May.
    2. Fehr, Dietmar, 2017. "Costly communication and learning from failure in organizational coordination," European Economic Review, Elsevier, vol. 93(C), pages 106-122.
    3. Steve, Heinke & Niels, Warmuth, 2016. "A Rational Inattention Perspective on Equilibrium Asset Pricing under Heterogeneous Information with Structural Breaks and Market Efficiency," MPRA Paper 68715, University Library of Munich, Germany.

    More about this item

    Keywords

    Attention; Coordination; Core competencies; Leadership; Organization Size; Organizational Design; Organizational Strategy;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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