Organizing to Adapt and Compete
Coauthor(s): Ricardo Alonso, Niko Matouschek.
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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.
Source: American Economic Journal: Microeconomics
Alonso, Ricardo, Wouter Dessein, and Niko Matouschek. "Organizing to Adapt and Compete." American Economic Journal: Microeconomics (forthcoming).