INFORMATION GATHERING, DELEGATED CONTRACTING AND CORPORATE HIERARCHIES

Chongwoo Choe and In-Uck Park

No 19/08, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: In a typical corporate hierarchy, the manager is delegated the authority to make strategic decisions, and to contract with other employees. We study when such delegation can be optimal. In centralization, the owner retains the authority, which fails to motivate the manager to acquire valuable information, leading to suboptimal decisions and inefficient incentive provision to the worker. Beneficial delegation should necessarily motivate the manager to acquire information, which is possible only when the authority is delegated to the manager. We also document comparative statics results regarding the benefits of delegation and discuss when delegation is more likely to dominate centralization.

Keywords: Corporate hierarchies; information gathering; delegation; centralization. (search for similar items in EconPapers)
JEL-codes: C72 D21 D82 L22 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2008-07-02
New Economics Papers: this item is included in nep-bec, nep-cta and nep-gth
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