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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, 2005. "On the Design of Hierarchies: Coordination Versus Specialization," Scholarly Articles 3448676, Harvard University Department of Economics.
  2. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
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  8. Sobel, Joel, 1992. "How to Count to One Thousand," Economic Journal, Royal Economic Society, vol. 102(410), pages 1-8, January.
  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 716-27, September.
  10. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
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  12. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
  13. 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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