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Alonso, Ricardo,
Wouter Dessein, and
Niko Matouschek. 2008. "When Does Coordination Require Centralization?."
,
98(1): 145-79.
Show Article Details
DOI: 10.1257/aer.98.1.145
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 D23, D83, L23, M11)
Additional links:
Link to Appendix
Authors:
Alonso, Ricardo (U Southern CA)
Dessein, Wouter (U Chicago)
Matouschek, Niko (Northwestern U)
JEL Classifications:
D23: Organizational Behavior; Transaction Costs; Property Rights
D83: Search; Learning; Information and Knowledge; Communication; Belief
L23: Organization of Production
M11: Production Management
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