Who Decides about Change and Restructuring in Organizations?

Kieron Meagher and Andrew Wait

No 587, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Social Sciences, Australian National University

Abstract: We model the determinants of who makes decisions, the principal or an agent, when there are multiple decisions. Decision making takes effort and time; and, once implemented, the expected loss from a particular decision (or project) increases with the length of time since the last decision was made. The model shows delegation is more likely as: (i) controllable uncertainty increases; (ii) uncontrollable uncertainty decreases; (iii) the number of plants in the firm decreases; (iv) the complexity of the decision increases; and (v) the importance of the decision increases. The theoretical predictions are consistent with our novel empirical results on the delegation of major organizational change decisions using workplace data. Our unique data allows us to identify who made a decision to implement a significant change, as well as key internal and external factors highlighted as potentially important in our theory. Empirically, delegation is more likely in organizations that: face a competitive product market; export; have predictable product demand; have a larger workplace; and that have fewer other workplaces in the same organization producing a similar output. We find business strategy is not related to the allocation of decision making authority; delegation, however, is associated with the use of human resource techniques such as the provision of bonuses to employees.

Keywords: decision making authority; decentralization; delegation; competition; exports; uncertainty; principal and agent (search for similar items in EconPapers)
JEL-codes: D23 L23 L29 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-knm, nep-lab and nep-ppm
Date: 2008-09
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Persistent link: http://EconPapers.repec.org/RePEc:auu:dpaper:587

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