Discussion paper
DP18341 Information and Authority in Multi-Divisional Organizations
This paper studies decision-making authority in an asymmetric two-divisional organization. The divisions differ in their payoff weights in the headquarters’ payoff function and have access to different pieces of information. Information is either of common or of private interest and the respective signals can vary in precision. Signals can be communicated via cheap talk. While centralized decision making is often optimal for balanced payoff weights, delegating the decision rights to the more payoff-relevant division can dominate. Having access to better and more information can be more important than having a larger payoff weight, in that the better informed but less payoff-relevant division obtains decision authority.
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