SSE/EFI Working Paper Series in Economics and Finance
No 634:
Organizational Structure as the Channeling of Boundedly Rational Pre-play Communication
Tore Ellingsen ()
and Robert Östling ()
Abstract: We model organizational decision making as costless
pre-play communication. Decision making is called authoritarian if only one
player is allowed to speak and consensual if all players are allowed to
speak. Players are assumed to have limited cognitive capacity and we
characterize their behavior under each decision making regime for two
different cognitive hierarchy models. Our results suggest that
authoritarian decision making is optimal when players have conflicting
preferences over the set of Nash equilibrium outcomes, whereas consensual
decision making is optimal when players have congruent preferences over
this set. The intuition is that authoritarian decision making avoids
conflict, but sometimes creates insufficient mutual trust to implement
socially optimal outcomes.
Keywords: Organizational decision making; coordination games; communication; cognitive hierarchy models; (follow links to similar papers)
JEL-Codes: C72; L20; M21; M54; (follow links to similar papers)
35 pages, September 25, 2006
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