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Aggregate Information and Organizational Structures

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  • Gorkem Celik
  • Dongsoo Shin
  • Roland Strausz

Abstract

We study information flows in an organization with a top management (principal) and multiple subunits (agents) with private information that determines the organization's overall efficiency. Under centralized communication, eliciting the agents' information may induce the principal to manipulate aggregate information, which obstructs an effective use of information. Under hierarchical communication, the principal concedes more information rent due to loss of control, but is able to use the agents' information more effectively. The trade‐off between the organizational structures depends on the likelihood that the agents are efficient. Centralized communication is optimal when such likelihood is low. Hierarchical communication, by contrast, is optimal when it is high.

Suggested Citation

  • Gorkem Celik & Dongsoo Shin & Roland Strausz, 2023. "Aggregate Information and Organizational Structures," Journal of Industrial Economics, Wiley Blackwell, vol. 71(1), pages 256-290, March.
    • Handle: RePEc:bla:jindec:v:71:y:2023:i:1:p:256-290
    DOI: 10.1111/joie.12314
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    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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