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Organizational Structure as the Channeling of Boundedly Rational Pre-play Communication

  • Ellingsen, Tore

    ()

    (Dept. of Economics, Stockholm School of Economics)

  • Östling, Robert

    ()

    (Dept. of Economics, Stockholm School of Economics)

We model organizational decision making as costless pre-play communication. Decision making is called authoritarian if only one player is allowed to speak and consensual if all players are allowed to speak. Players are assumed to have limited cognitive capacity and we characterize their behavior under each decision making regime for two different cognitive hierarchy models. Our results suggest that authoritarian decision making is optimal when players have conflicting preferences over the set of Nash equilibrium outcomes, whereas consensual decision making is optimal when players have congruent preferences over this set. The intuition is that authoritarian decision making avoids conflict, but sometimes creates insufficient mutual trust to implement socially optimal outcomes.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 634.

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Length: 35 pages
Date of creation: 25 Sep 2006
Date of revision:
Handle: RePEc:hhs:hastef:0634
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  1. Vincent P. Crawford, 2003. "Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions," American Economic Review, American Economic Association, vol. 93(1), pages 133-149, March.
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  10. Joseph Farrell and Garth Saloner., 1987. "Coordination Through Committees and Markets," Economics Working Papers 8740, University of California at Berkeley.
  11. Matthew Rabin., 1991. "A Model of Pre-Game Communication," Economics Working Papers 91-164, University of California at Berkeley.
  12. Burton, Anthony & Sefton, Martin, 2004. "Risk, pre-play communication and equilibrium," Games and Economic Behavior, Elsevier, vol. 46(1), pages 23-40, January.
  13. Charness, Gary, 2000. "Self-Serving Cheap Talk: A Test Of Aumann's Conjecture," Games and Economic Behavior, Elsevier, vol. 33(2), pages 177-194, November.
  14. Banerjee, Abhijit & Weibull, Jorgen W., 2000. "Neutrally Stable Outcomes in Cheap-Talk Coordination Games," Games and Economic Behavior, Elsevier, vol. 32(1), pages 1-24, July.
  15. Dale O. Stahl & Paul W. Wilson, 2010. "On Players' Models of Other Players: Theory and Experimental Evidence," Levine's Working Paper Archive 542, David K. Levine.
  16. Blume, Andreas & Ortmann, Andreas, 2007. "The effects of costless pre-play communication: Experimental evidence from games with Pareto-ranked equilibria," Journal of Economic Theory, Elsevier, vol. 132(1), pages 274-290, January.
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  25. repec:car:ciorup:89-07 is not listed on IDEAS
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