When Does Coordination Require Centralization?
- (pp. 145-79)
AbstractThis 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)
Citation2008. "When Does Coordination Require Centralization?" American Economic Review, 98(1): 145-79. DOI: 10.1257/aer.98.1.145
- D23 Organizational Behavior; Transaction Costs; Property Rights
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- L23 Organization of Production
- M11 Production Management