Rational Inattention and Organizational Focus
- (pp. 1522-36)
Abstract
This paper studies optimal communication flows in organizations. A production process can be coordinated ex ante, by letting agents stick to a prespecified plan of action. Alternatively, agents may adapt to task-specific shocks, in which case tasks must be coordinated ex post, using communication. When attention is scarce, an optimal organization coordinates only a few tasks ex post. Those tasks are higher performing, more adaptive to the environment, and influential. Hence, scarce attention requires setting priorities, not just local optimization. Our results provide microfoundations for a central idea in the management literature that firms should focus on a limited set of core competencies.Citation
Dessein, Wouter, Andrea Galeotti, and Tano Santos. 2016. "Rational Inattention and Organizational Focus." American Economic Review, 106 (6): 1522-36. DOI: 10.1257/aer.20140741Additional Materials
JEL Classification
- D23 Organizational Behavior; Transaction Costs; Property Rights
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D85 Network Formation and Analysis: Theory
- L23 Organization of Production
- M11 Production Management
- M54 Personnel Economics: Labor Management