Rational Inattention and Organizational Focus

62 Pages Posted: 19 Mar 2013

See all articles by Wouter Dessein

Wouter Dessein

Columbia Business School - Finance and Economics

Andrea Galeotti

University of Essex

Tano Santos

Columbia Business School; National Bureau of Economic Research (NBER)

Date Written: March 2013

Abstract

We examine the allocation of scarce attention in team production. Each team member is in charge of a specialized task, which must be adapted to a privately observed shock and coordinated with other tasks. Coordination requires that agents pay attention to each other, but attention is in limited supply. We show that when attention is scarce, organizational focus and leadership naturally arise as a response to organizational trade-offs between coordination and adaptation. At the optimum, all attention is evenly allocated to a select number of "leaders." The organization then excels in a small number of focal tasks at the expense of all others. Our results shed light on the importance of leadership, strategy and “core competences,” as well as new trends in organization design. We also derive implications for the optimal size or “scope” of organizations. Surprisingly, improvements in communication technology may result in smaller but more adaptive organizations.

Keywords: Attention, Coordination, Core competencies, Leadership, Organization Size, Organizational Design, Organizational Strategy

JEL Classification: D2, D83, D85, L2

Suggested Citation

Dessein, Wouter and Galeotti, Andrea and Santos, Tano, Rational Inattention and Organizational Focus (March 2013). CEPR Discussion Paper No. DP9395. Available at SSRN: https://ssrn.com/abstract=2235493

Wouter Dessein (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Andrea Galeotti

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Tano Santos

Columbia Business School ( email )

3022 Broadway - Uris Hall
Room 815
New York, NY 10027
United States
212-854-0489 (Phone)
212-316-9180 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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