"When Does Coordination Require Centralization?"

Ricardo Alonso, Wouter Dessein, Niko Matouschek

© American Economic Review, March 2008
Volume: 98 | Issue: 1 | Pages: 145-179

Publication type: Journal article

Research Archive Topic: Organizations

Abstract

This paper compares centralized and decentralized coordination when managers are privately informed and communicate strategically. We consider a multi-divisional 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.

Download PDF

 

Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.

Each topic is linked to an index of publications on that topic.

Contract

Add a new
Add a new