Information, Authority, and Corporate Hierarchies

Chongwoo Choe and In-Uck Park

No 03-10, 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. 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.

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: 42 pages
Date: 2010-05
New Economics Papers: this item is included in nep-bec, nep-cta and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Information, Authority, and Corporate Hierarchies (2011)
Working Paper: Information, Authority, and Corporate Hierarchies (2010)
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