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When does coordination require centralization?

Alonso, Ricardo ORCID: 0000-0001-9559-0864, Dessein, Wouter and Matouschek, Niko (2008) When does coordination require centralization? American Economic Review, 98 (1). pp. 145-179. ISSN 0002-8282

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Identification Number: 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.

Item Type: Article
Official URL: http://www.aeaweb.org/aer/index.php
Additional Information: © 2008 American Economic Association
Divisions: Management
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HE Transportation and Communications
JEL classification: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L23 - Organization of Production
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M11 - Production Management
Date Deposited: 05 Aug 2014 13:49
Last Modified: 17 Jun 2024 21:12
URI: http://eprints.lse.ac.uk/id/eprint/58664

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