Leadership and Information

Mana Komai, Mark Stegeman and Benjamin Hermalin

American Economic Review, 2007, vol. 97, issue 3, 944-947

Abstract: An organization makes collective decisions through neither markets nor contracts. Instead, rational agents voluntarily choose to follow a leader. In many cases, incentive problems are solved: the unique nondegenerate equilibrium achieves the first best, even though every agent has incentives to free ride. The leader has no special talents but is distinguished by getting exclusive access to information. A crucial feature is that the leader reveals part but not all of her information. It is this maintenance of informational asymmetry that permits achieving the first best. (JEL D23, M54)

Date: 2007
Note: DOI: 10.1257/aer.97.3.944
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