Contract Renegotiation and Organizational Design

Michel Poitevin

CIRANO Working Papers from CIRANO

Abstract: This paper studies the implications of non-commitment for organizational design. An organizational form must trade-off between the coordination benefits associated with the centralization of information and its associated costs in terms of renegotiation. This analysis makes precise what these benefits and costs are. First, I characterize renegotiation-proof allocations for organizational forms that differ in the amount of decentralization that they support. Second, I compare these different organizational forms. The analysis shows that a complete decentralization of decision-making is always weakly dominated by more centralized structures when information is dispersed in the organization. Decision-making should always be in the hand of the player with the most important or relevant information. Ce papier étudie les implications pour la structure organisationnelle des problèmes de non-engagement. Une structure organisationnelle adéquate permet l'arbitrage entre les bénéfices et les coûts associés à la centralisation de la prise de décision. Parmi les bénéfices, on retrouve une meilleure coordination des informations des membres de l'organisation; parmi les coûts, on retrouve les inefficacités reliées aux difficultés d'engagement et à la renégociation. L'analyse démontre qu'une décentralisation complète est toujours faiblement dominée par une structure plus centralisée. Finalement, la prise de décision doit être conférée aux agents ayant l'information la plus cruciale pour la performance de l'organisation.

Keywords: Asymmetric information; Contract renegotiation; Organizational form; Decentralization, Information assymétrique; Renégociation de contrats; Structure organisationnelle; Décentralisation (search for similar items in EconPapers)
JEL-codes: D82 L14 (search for similar items in EconPapers)
Date: 1995-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Contract Renegotiation and Organizational Design (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:95s-03

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