Disagreement and the Allocation of Control

Eric Van den Steen

The Journal of Law, Economics, and Organization, 2010, vol. 26, issue 2, 385-426

Abstract: This article studies the allocation of control when there is disagreement--in the sense of differing priors--about the right course of action. People then value control rights since they believe that their decisions are better than those of others. More disagreement (due to, e.g., fundamental uncertainty) increases the value that players attach to control. The article shows that all income and control of a project should then be concentrated in one hand: income rights should go more to people with more control since such people value income higher (because they have a higher opinion of the decisions made); control rights should go more to people with more income since they care more (and believe that they make better decisions). Different projects may be optimally "owned" by different people. Furthermore--with residual income exogenously allocated--complementary decisions should be more co-located, whereas substitute decisions should be more distributed. Confident people with a lot at stake should--in a wide range of settings--get more control. (JEL D7, D8, L2, M1) The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2010
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