When does coordination require centralization?

Ricardo Alonso, Wouter Dessein and Niko Matouschek

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper compares centralized and decentralized coordination when managers are privately informed and communicate strategically. We consider a multidivisional organization in which decisions must be adapted to local conditions but also coordinated with each other. Information about local conditions is dispersed and held by self-interested division managers who communicate via cheap talk. The only available formal mechanism is the allocation of decision rights. We show that a higher need for coordination improves horizontal communication but worsens vertical communication. As a result, decentralization can dominate centralization even when coordination is extremely important relative to adaptation.

JEL-codes: D23 D83 L23 M11 (search for similar items in EconPapers)
Date: 2008-03
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Citations: View citations in EconPapers (203)

Published in American Economic Review, March, 2008, 98(1), pp. 145-179. ISSN: 0002-8282

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Related works:
Journal Article: When Does Coordination Require Centralization? (2008)
Working Paper: When Does Coordination Require Centralization? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:58664

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