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Budgeting and Hierarchical Control

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  • Dilip Mookherjee
  • Stefan Reichelstein

Abstract

This paper develops a model of budgeting in hierarchical organizations. Each agent (manager) in the hierarchy receives a budget for a task; based on his own information, the agent assigns tasks and budgets to his subordinates, who, in turn, do the same for their subordinates and so forth. Each department's performance is measured by the difference between budgeted and actual cost. In this setting we show that a particular budget mechanism is optimal in terms of the incentives it creates and the coordination it achieves.
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Suggested Citation

  • Dilip Mookherjee & Stefan Reichelstein, 1996. "Budgeting and Hierarchical Control," Papers 0071, Boston University - Industry Studies Programme.
  • Handle: RePEc:fth:bostin:0071
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    References listed on IDEAS

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    Cited by:

    1. Grüner, Hans Peter, 2007. "Protocol Design and (De-)Centralization," CEPR Discussion Papers 6357, C.E.P.R. Discussion Papers.
    2. Baliga, Sandeep & Sjostrom, Tomas, 1998. "Decentralization and Collusion," Journal of Economic Theory, Elsevier, vol. 83(2), pages 196-232, December.
    3. Hans Peter Grüner & Elisabeth Schulte, 2004. "Speed and Quality of Collective Decision Making: Incentives for," Levine's Bibliography 122247000000000417, UCLA Department of Economics.
    4. 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.
    5. Grüner, Hans Peter, 2007. "Information Technology, Efficient Restructuring and the Productivity Puzzle," CEPR Discussion Papers 6109, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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