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Strategic control and strategic communication

Alonso, Ricardo (2009) Strategic control and strategic communication. USC Marshall School of Business Research Paper Series, University of Southern California, Marshall School of Business, Los Angeles, CA, USA.

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Abstract

This paper studies the optimal allocation of decision rights between an uninformed principal and an informed agent when interdependent activities need to be adapted to local conditions. While the principal cares only about overall profits the agent may favor higher, or lower, levels for each activity than the profit-maximizing level. The principal has limited commitment power and can only commit to an ex-ante allocation of decision rights. Whenever the principal retains some (or all) decision rights the agent communicates his information strategically, i.e. via cheap talk. We show that if activities are complementary the principal can always improve the informativeness of communication by sharing control with the agent, while sharing control over activities that interact as substitutes always worsens communication. As a result of this communication advantage, sharing control over complementary activities can be optimal, while control over activities that interact as substitutes is optimally allocated to the same party.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.marshall.usc.edu/
Additional Information: © 2014 The Author, USC Marshall School of Business
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HE Transportation and Communications
Sets: Departments > Management
Date Deposited: 05 Aug 2014 16:06
Last Modified: 06 Aug 2014 15:23
URI: http://eprints.lse.ac.uk/id/eprint/58682

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