Abstract
We examine the relationship between the organization of a multi-divisional firm and its ability to adapt production decisions to changes in the environment. We show that even if lower-level managers have superior information about local conditions, and incentive conflicts are negligible, a centralized organization can be better at adapting to local information than a decentralized one. As a result, and in contrast to what is commonly argued, an increase in product market competition that makes adaptation more important can favor centralization rather than decentralization.
Full Citation
.
“Organizing to Adapt and Compete.”
American Economic Journal: Microeconomics
vol.
7
,
(January 01, 2015):
158
-187
.