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Externalities, communication and the allocation of decision rights

  • Bester, Helmut

This paper views authority as the right to undertake decisions that impose externalities on other members of the organization. When only decision rights can be contractually assigned to one of the organization's stakeholders, the optimal assignment minimizes the resulting inefficiencies by giving control rights to the party with the highest stake in the organization's decisions. Under asymmetric information, the efficient allocation of authority depends on the communication of private information. In the case of multiple decision areas, divided control rights may enhance organizational efficiency unless there exist complementarities between different decisions.

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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2005/21.

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Date of creation: 2005
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Handle: RePEc:zbw:fubsbe:200521
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  8. Christos Koulovatianos & Carsten Schröder & Ulrich Schmidt, 2005. "Non-Market Time and Household Well-Being," Vienna Economics Papers 0507, University of Vienna, Department of Economics.
  9. Bester, Helmut, 2004. "Externalities and the Allocation of Decision Rights in the Theory of the Firm," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 23, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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