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The Limits of Authority: Motivation versus Coordination

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  • Van den Steen, Eric

Abstract

This paper studies the effects of open disagreement on motivation and coordination. It shows how - in the presence of differing priors - motivation and coordination impose conflicting demands on the allocation of authority, leading to a trade-off between the two. The paper first derives a new mechanism for delegation: since the agent thinks - by revealed preference applied to differing priors - that his own decisions are better than those of the principal, delegation will motivate him to exert more effort when effort and correct decisions are complements. A need for implementation effort will thus lead to more decentralization. The opposite holds for substitutes. Delegation, however, reduces coordination when people disagree on the right course of action. The paper shows that - with differing priors - the firm needs to rely more on authority (as opposed to incentives) to solve coordination problems, relative to the case with private benefits. An interesting side-result here is that the principal will actively enforce her decisions only at intermediate levels of the need for coordination. The combination of the two main results implies a trade-off between motivation and coordination, both on a firm level and across firms. I derive the motivation-coordination possibility frontier and show the equilibrium distribution of effort versus coordination. I finally argue that strong culture, in the sense of homogeneity, is one (costly) way to relax the trade-off.

Suggested Citation

  • Van den Steen, Eric, 2007. "The Limits of Authority: Motivation versus Coordination," Working papers 37305, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  • Handle: RePEc:mit:sloanp:37305
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    File URL: http://hdl.handle.net/1721.1/37305
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    References listed on IDEAS

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    Cited by:

    1. Di Maggio, Marco, 2009. "Sweet Talk: A Theory of Persuasion," MPRA Paper 18697, University Library of Munich, Germany.
    2. Eric Van den Steen, 2009. "Authority versus Persuasion," American Economic Review, American Economic Association, vol. 99(2), pages 448-453, May.
    3. Gary Charness & Ramón Cobo-Reyes & Juan A. Lacomba & Francisco Lagos & Jose Maria Perez, 2016. "Social comparisons in wage delegation: experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 19(2), pages 433-459, June.
    4. Eric Van den Steen, 2010. "Culture Clash: The Costs and Benefits of Homogeneity," Management Science, INFORMS, vol. 56(10), pages 1718-1738, October.
    5. Wang, Tianxi, 2009. "Ownership, Control, and Incentive," Economics Discussion Papers 2955, University of Essex, Department of Economics.
    6. Wouter Dessein & Luis Garicano & Robert Gertner, 2010. "Organizing for Synergies," American Economic Journal: Microeconomics, American Economic Association, vol. 2(4), pages 77-114, November.
    7. Anthony M. Marino & John G. Matsusaka & Jan Zabojnik, 2006. "Disobedience And Authority," Working Paper 1109, Economics Department, Queen's University.

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    Keywords

    delegation; motivation; coordination; authority; differing priors; heterogeneous priors;
    All these keywords.

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