When does coordination require centralization?

Ricardo Alonso*, Wouter Dessein, Niko Matouschek

*Corresponding author for this work

Research output: Contribution to journalArticle

185 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)145-179
Number of pages35
JournalAmerican Economic Review
Volume98
Issue number1
DOIs
StatePublished - Mar 2008

ASJC Scopus subject areas

  • Economics and Econometrics

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