American Economic Review Vol. 106 No. 9 2016

Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment

Steven R. Grenadier¹; Andrey Malenko²; Nadya Malenko³

¹ Graduate School of Business, Stanford University, 655 Knight Way, Stanford, CA 94305 (e-mail: ) · ² MIT Sloan School of Management, 100 Main Street, E62-619, Cambridge, MA 02142 (e-mail: ) · ³ Carroll School of Management, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467 (e-mail: )

Abstract

We consider a problem where an uninformed principal makes a timing decision interacting with an informed but biased agent. Because time is irreversible, the direction of the bias crucially affects the agent's ability to credibly communicate information. When the agent favors late decision making, full information revelation often occurs. In this case, centralized decision making, where the principal retains authority and communicates with the agent, implements the optimal decision-making rule. When the agent favors early decision making, communication is partial, and the optimal decision-making rule is not implemented. Delegation adds value when the bias is for early decision making, but not for late decision making.

DOI

10.1257/aer.20150416

Volume

106

Issue

9

Pages

2552-2581

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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