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Scapegoats and Optimal Allocation of Responsibility

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Listed author(s):
  • Eyal Winter

    ()

Abstract

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
Handle: RePEc:huj:dispap:dp266
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  1. Oliver Hart & John Moore, 2005. "On the Design of Hierarchies: Coordination versus Specialization," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 675-702, August.
  2. McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 399-426, Fall.
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  6. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  7. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
  8. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
  9. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
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  12. Timothy van Zandt, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 633-658.
  13. repec:hrv:faseco:30728046 is not listed on IDEAS
  14. Timothy Van Zandt, 1998. "The scheduling and organization of periodic associative computation: Efficient networks," Review of Economic Design, Springer;Society for Economic Design, vol. 3(2), pages 93-127.
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Cited by:

  1. Patrick W. Schmitz, 2005. "Should Contractual Clauses that Forbid Renegotiation Always be Enforced?," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(2), pages 315-329, October.
  2. Patrick W. Schmitz, 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 318-336, Summer.
  3. Guillermo Ordonez, 2005. "Don't Ask Why Things Went Wrong: Nested Reputation and Scapegoating Inefficiency," Levine's Working Paper Archive 618897000000000988, David K. Levine.

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