Information, Authority, and Corporate Hierarchies

Choe, Chongwoo and In-Uck, Park (2010): Information, Authority, and Corporate Hierarchies.

Abstract

In a typical corporate hierarchy, the manager is delegated the authority to make strategic decisions, and to contract with other employees. By studying a model with one principal and two agents where one agent can gather information that is valuable for the principal's project choice and the other agent provides effort to the chosen project, we study when the principal can benefit from such delegation relative to centralization. We show that beneficial delegation is possible when complete contracts cannot be written, and delegation of authority should necessarily be to the information gatherer. The benets of delegation stem from either efficiency gains or reduction in rent to the information gatherer.

• Item Type: MPRA Paper
• Language: English
• Keywords: Corporate hierarchies; information gathering; delegation; centralization.
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

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