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Scapegoats and Optimal Allocation of Responsibility

  • Eyal Winter

    ()

We consider a model of hierarchical organizations in which agents have the option of reducing the probability of failure by investing towards their decisions. A mechanism specifies a distribution of sanctions in case of failure across the levels of the hierarchy. It is said to be investment-inducing if it induces all agents to invest in equilibrium. It is said to be optimal if it does so at minimal total punishment. We characterize optimal investment-inducing mechanisms in several versions of our benchmark model. In particular we refer to the problem of allocating individuals with diverse qualifications to different levels of the hierarchy as well as allocating tasks of different importance across different hierarchy levels. We also address the issue of incentive-optimal hierarchy architectures.

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Paper provided by The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem in its series Discussion Paper Series with number dp266.

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Length: 36 pages
Date of creation: Aug 2001
Date of revision:
Handle: RePEc:huj:dispap:dp266
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  1. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  2. Raaj Kumar Sah & Joseph E. Stiglitz, 1984. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
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  4. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
  5. McAfee, R. Preston & McMillan, John., 1990. "Organizational Diseconomies of Scale," Working Papers 728, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Oliver Hart & John Moore, 1999. "On the design of hierarchies: coordination versus specialization," LSE Research Online Documents on Economics 19340, London School of Economics and Political Science, LSE Library.
  7. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
  8. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
  9. Van Zandt, Timothy, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 633-58, July.
  10. Timothy Van Zandt, 1998. "The scheduling and organization of periodic associative computation: Efficient networks," Review of Economic Design, Springer, vol. 3(2), pages 93-127.
  11. Sobel, Joel, 1992. "How to Count to One Thousand," Economic Journal, Royal Economic Society, vol. 102(410), pages 1-8, January.
  12. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
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