Externalities, Communication and the Allocation of Decision Rights

Helmut Bester

No 5391, CEPR Discussion Papers from C.E.P.R. Discussion 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)
Date: 2005-11
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://cepr.org/publications/DP5391 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Externalities, communication and the allocation of decision rights (2009)
Working Paper: Externalities, Communication and the Allocation of Decision Rights
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:5391

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP5391

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().