Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment

85 Pages Posted: 14 Nov 2014 Last revised: 1 Sep 2016

See all articles by Steven R. Grenadier

Steven R. Grenadier

Stanford Graduate School of Business

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR)

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: September 2016

Abstract

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

Grenadier, Steven R. and Malenko, Andrey and Malenko, Nadya, Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment (September 2016). American Economic Review, Vol. 106, No. 9, September 2016, Available at SSRN: https://ssrn.com/abstract=2523719 or http://dx.doi.org/10.2139/ssrn.2523719

Steven R. Grenadier

Stanford Graduate School of Business ( email )

Graduate School of Business
Stanford, CA 94305-5015
United States
650-725-0706 (Phone)
650-725-6152 (Fax)

Andrey Malenko (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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