Externalities, Communication and the Allocation of Decision Rights

Helmut Bester

Departmental Working Papers

Abstract: This paper views authority as the right to undertake decisions that impose externalities on other members of the organization. When only decision rights can be contractually assigned to one of the organization's stakeholders, the optimal assignment minimizes the resulting inefficiencies by giving control rights to the party with the highest stake in the organization's decisions. Under asymmetric information, the efficient allocation of authority depends on the communication of private information. In the case of multiple decision areas, divided control rights may enhance organizational efficiency unless there exist complementarities between different decisions.

Keywords: Authority; Decision Rights; Externalities; Incomplete Contracts; Imperfect Information; Theory of the Firm (search for similar items in EconPapers)
JEL-codes: D23 D82 L22 P14 (search for similar items in EconPapers)
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Related works:
Journal Article: Externalities, communication and the allocation of decision rights (2009)
Working Paper: Externalities, Communication and the Allocation of Decision Rights (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:bef:lsbest:027

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