Authority and Specialization under Informational Interdependence

Abstract

We analyze authority allocation to incentivize information acquisition under interdependence. Agents access noisy signals about two states of the world. Beyond costs, acquisition depends on the expected influence on decisions, determined by whether authority is centralized or split among decision-makers. Restricting an agent’s information on the extensive margin enhances communication. When such \textit{specialization} is not feasible, informational congestion may induce similar incentive effects. Split authority may lead decision-makers to lose perspective by failing to internalize interdependence.  Our findings indicate that multinational corporations must balance centralized and decentralized authority to optimize information flow and decision-making across diverse products and regions.

Keywords: Multidimensional Cheap Talk, Industrial Organization, Delegation, Organizational Design

JEL Classification: D21, D83, L23