Rational Inattention and Organizational Focus

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