When Does Coordination Require Centralization?

Ricardo Alonso, Wouter Dessein () and Niko Matouschek

American Economic Review, 2008, vol. 98, issue 1, 145-79

Abstract: This paper compares centralized and decentralized coordination when managers are privately informed and communicate strategically. We consider a multidivisional organization in which decisions must be adapted to local conditions but also coordinated with each other. Information about local conditions is dispersed and held by self-interested division managers who communicate via cheap talk. The only available formal mechanism is the allocation of decision rights. We show that a higher need for coordination improves horizontal communication but worsens vertical communication. As a result, decentralization can dominate centralization even when coordination is extremely important relative to adaptation. (JEL D23, D83, L23, M11)

JEL-codes: D23 D83 L23 M11 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.1.145
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Citations: View citations in EconPapers (245)

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Related works:
Working Paper: When does coordination require centralization? (2008)
Working Paper: When Does Coordination Require Centralization? (2006)
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