Document Type
Article
Publication Date
3-2023
Publisher
John Wiley & Sons Ltd
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.
Recommended Citation
Celik, G., Shin, D., & Strausz, R. (2023). Aggregate Information and Organizational Structures. The Journal of Industrial Economics, 71(1), 256–290. https://doi.org/10.1111/joie.12314
Comments
© 2023 The Authors. The Journal of Industrial Economics published by The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd.
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.