Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment
85 Pages Posted: 14 Nov 2014 Last revised: 1 Sep 2016
Date Written: September 2016
We consider a problem where an uninformed principal makes a timing decision interacting with an informed but biased agent. Because time is irreversible, the direction of the bias crucially affects the agent's ability to credibly communicate information. When the agent favors late decision-making, full information revelation often occurs. In this case, centralized decision-making, where the principal retains authority and communicates with the agent, implements the optimal decision-making rule. When the agent favors early decision-making, communication is partial, and the optimal decision-making rule is not implemented. Delegation adds value when the bias is for early decision-making, but not for late decision-making.
Keywords: organizational economics, real options, delegation, communication, cheap talk, allocation of authority, timing decisions
JEL Classification: D23, D82, D83, G31, L22
Suggested Citation: Suggested Citation