Diversity and Empowerment in Organizations

We study how diversity and participatory decision-making affect organizational performance. Our model involves a manager who can acquire costly information to guide project selection, and a worker responsible for its implementation. We model diversity as heterogeneous beliefs between the organization’s members and participatory decision-making as how much the worker’s perspective influences project choice—related to notions of empowerment and inclusion. Our findings show that higher diversity enhances decision-making and implementation outcomes when the manager can access high-quality information and the worker is sufficiently empowered. When information acquisition is covert, the manager cannot signal her commitment to reducing disagreement, thus eliminating any benefits of increasing diversity. When communication is strategic, the associated credibility loss dilutes the manager’s benefits from acquiring information, but the conflict of interest decreases with information quality. Our results imply that the ‘business case for diversity’ requires complementary organizational processes that foster informational transparency and trust among members.