An Experiment on Democratic Versus Dictatorial Collective Decision Making
60 Pages Posted: 18 Jul 2015
Date Written: July 17, 2015
We report on an experiment that tests for the effects of democratic versus hierarchical rules for joint decision making in organizations, like companies, which operate in a competitive environment. While discussion improves outcomes via an effect on public goods contributions, we find that there is no difference between the decisions made under democracy and those made under hierarchy: an institutional version of the Modigliani-Miller theorem. The wisdom of crowd effect benefiting democratic organizations is counterbalanced by a greater attention paid by the manager in hierarchical organizations to the price decision, which we call the attention responsibility effect.
Keywords: democracy, hierarchy, organizational structure, Bertrand, chat, advice
JEL Classification: C72, C91, C92, D43, H41
Suggested Citation: Suggested Citation