DECENTRALIZATION, INFORMATIONAL ASYMMETRY, AND THE VALUE OF COMMUNICATIONAND DELEGATION

This study analyzes the value of communication and delegation in a decentralized organization where pre-decision informational asymmetries between a central manager and a divisional manager are an inherent characteristic. First, sufficient and necessary conditions for communication to be strictly valuable are identified. I specify a condition on the pre-decision information system, and show that this condition is closely related to the value of communication such that satisfying this condition is the necessary condition and also one of the sufficient conditions for communication to be strictly valuable. Next, I analyze the value of delegation in the presence of limited communication. Delegation can be viewed as indirect communication which may provide valuable information when direct communication is limited. This study shows that a central manager can obtain additional information by observing a decision made by a divisional manager, and this information can be used as a contractual basis for better monitoring.