Externalities, Communication and the Allocation of Decision Rights

Bester, Helmut (November 2005): Externalities, Communication and the Allocation of Decision Rights. SFB/TR 15 Discussion Paper No. 69

Abstract

This paper views authority as the right to undertake decisions that impose externalities on other members of the organization. When only decision rights can be contractually assigned to one of the organization’s stakeholders, the optimal assignment minimizes the resulting inefficiencies by giving control rights to the party with the highest stake in the organization’s decisions. Under asymmetric information, the efficient allocation of authority depends on the communication of private information. In the case of multiple decision areas, divided control rights may enhance organizational efficiency unless there exist complementarities between different decisions.

• Item Type: Paper
• Keywords: Authority, Decision Rights, Externalities, Incomplete Contracts,
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A1 - Allokationsmechanismen in Organisationen und Märkten
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D23, D82, L22, P14
• Language: English