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

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  • Ellingsen, Tore

    (Dept. of Economics, Stockholm School of Economics)

  • Östling, Robert

    (Dept. of Economics, Stockholm School of Economics)

Abstract

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.

Suggested Citation

  • Ellingsen, Tore & Östling, Robert, 2006. "Organizational Structure as the Channeling of Boundedly Rational Pre-play Communication," SSE/EFI Working Paper Series in Economics and Finance 634, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0634
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    References listed on IDEAS

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    Cited by:

    1. Erik Wengström, 2008. "Price competition, level-k theory and communication," Economics Bulletin, AccessEcon, vol. 3(66), pages 1-15.
    2. Tore Ellingsen & Robert Östling, 2010. "When Does Communication Improve Coordination?," American Economic Review, American Economic Association, vol. 100(4), pages 1695-1724, September.
    3. Kawagoe, Toshiji & Takizawa, Hirokazu, 2009. "Equilibrium refinement vs. level-k analysis: An experimental study of cheap-talk games with private information," Games and Economic Behavior, Elsevier, vol. 66(1), pages 238-255, May.
    4. Wengström, Erik, 2007. "Setting the Anchor: Price Competition, Level-n Theory and Communication," Working Papers 2007:6, Lund University, Department of Economics.
    5. repec:ebl:ecbull:v:3:y:2008:i:66:p:1-15 is not listed on IDEAS

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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