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Information, Authority, and Corporate Hierarchies

  • Chongwoo Choe
  • In-Uck Park
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    In a typical corporate hierarchy, the manager is delegated the authority to make strategic decisions, and to contract with other employees. By studying a model with one principal and two agents where one agent can gather information that is valuable for the principal's project choice and the other agent provides effort to the chosen project, we study when the principal can benefit from such delegation relative to centralization. We show that beneficial delegation is possible when complete contracts cannot be written, and delegation of authority should necessarily be to the information gatherer. The benefits of delegation stem from either efficiency gains or reduction in rent to the information gatherer.

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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2010/0310informationchoepark.pdf
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    Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 03-10.

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    Length: 42 pages
    Date of creation: May 2010
    Date of revision:
    Handle: RePEc:mos:moswps:2010-03
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