Decision-making in organizations: when to delegate and whom to delegate

Stefan Ambec and Michel Poitevin

Review of Economic Design, 2016, vol. 20, issue 2, No 2, 115-143

Abstract: Abstract A production process involves a principal and two privately informed agents. Production requires coordinated decision making. It might be carried in a centralized organization or through delegated contracting in a hierarchical structure. We compare the performance of different organizational structures when renegotiation of initial contracts is possible. We show that delegated contracting always dominates centralization if the downstream contract between the agents is observable. Contracting (resp. control) should be delegated to the agent with the least (resp. most) important information. If downstream contracts are not observable, we obtain a tradeoff between centralization and delegation.

Keywords: Organizations; Mechanism design; Decentralization; Incentives; Non-commitment (search for similar items in EconPapers)
JEL-codes: D02 D82 D86 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s10058-015-0185-6

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