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American Economic Review Vol. 106 No. 6 2016

Rational Inattention and Organizational Focus

Wouter Dessein1; Andrea Galeotti2; Tano Santos1

1 Columbia Business School, Columbia University, 3022 Broadway, Uris Hall 625, New York, NY 10027 (e-mail: ) · 2 Department of Economics, European University Institute, Villa San Paolo, Via della Piazzuola 43, 50133 Florence, Italy (e-mail: )

Abstract

This paper studies optimal communication flows in organizations. A production process can be coordinated ex ante, by letting agents stick to a prespecified plan of action. Alternatively, agents may adapt to task-specific shocks, in which case tasks must be coordinated ex post, using communication. When attention is scarce, an optimal organization coordinates only a few tasks ex post. Those tasks are higher performing, more adaptive to the environment, and influential. Hence, scarce attention requires setting priorities, not just local optimization. Our results provide microfoundations for a central idea in the management literature that firms should focus on a limited set of core competencies.

DOI
10.1257/aer.20140741
Volume
106
Issue
6
Pages
1522-1536
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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