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Title:Organizational structure as the channeling of boundedly rational pre-play communication PDF Logo
Authors:Ellingsen, Tore
Östling, Robert
Issue Date:2006
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 634
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.
Subjects:Organizational decision making
coordination games
communication
cognitive hierarchy models
JEL:C72
L20
M21
M54
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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