The Limits of Authority: Motivation versus Coordination

This paper studies the effects of open disagreement on motivation and coordination. It shows how - in the presence of differing priors - motivation and coordination impose conflicting demands on the allocation of authority, leading to a trade-off between the two. The paper first derives a new mec...

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Main Author: Van den Steen, Eric
Format: Working Paper
Language:en_US
Published: 2007
Subjects:
Online Access:http://hdl.handle.net/1721.1/37305
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author Van den Steen, Eric
author_facet Van den Steen, Eric
author_sort Van den Steen, Eric
collection MIT
description This paper studies the effects of open disagreement on motivation and coordination. It shows how - in the presence of differing priors - motivation and coordination impose conflicting demands on the allocation of authority, leading to a trade-off between the two. The paper first derives a new mechanism for delegation: since the agent thinks - by revealed preference applied to differing priors - that his own decisions are better than those of the principal, delegation will motivate him to exert more effort when effort and correct decisions are complements. A need for implementation effort will thus lead to more decentralization. The opposite holds for substitutes. Delegation, however, reduces coordination when people disagree on the right course of action. The paper shows that - with differing priors - the firm needs to rely more on authority (as opposed to incentives) to solve coordination problems, relative to the case with private benefits. An interesting side-result here is that the principal will actively enforce her decisions only at intermediate levels of the need for coordination. The combination of the two main results implies a trade-off between motivation and coordination, both on a firm level and across firms. I derive the motivation-coordination possibility frontier and show the equilibrium distribution of effort versus coordination. I finally argue that strong culture, in the sense of homogeneity, is one (costly) way to relax the trade-off.
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spelling mit-1721.1/373052019-04-12T08:06:28Z The Limits of Authority: Motivation versus Coordination Van den Steen, Eric delegation motivation coordination authority differing priors heterogeneous priors This paper studies the effects of open disagreement on motivation and coordination. It shows how - in the presence of differing priors - motivation and coordination impose conflicting demands on the allocation of authority, leading to a trade-off between the two. The paper first derives a new mechanism for delegation: since the agent thinks - by revealed preference applied to differing priors - that his own decisions are better than those of the principal, delegation will motivate him to exert more effort when effort and correct decisions are complements. A need for implementation effort will thus lead to more decentralization. The opposite holds for substitutes. Delegation, however, reduces coordination when people disagree on the right course of action. The paper shows that - with differing priors - the firm needs to rely more on authority (as opposed to incentives) to solve coordination problems, relative to the case with private benefits. An interesting side-result here is that the principal will actively enforce her decisions only at intermediate levels of the need for coordination. The combination of the two main results implies a trade-off between motivation and coordination, both on a firm level and across firms. I derive the motivation-coordination possibility frontier and show the equilibrium distribution of effort versus coordination. I finally argue that strong culture, in the sense of homogeneity, is one (costly) way to relax the trade-off. 2007-04-27T19:25:53Z 2007-04-27T19:25:53Z 2007-04-27T19:25:53Z Working Paper http://hdl.handle.net/1721.1/37305 en_US MIT Sloan School of Management Working Paper 4626-06 application/pdf
spellingShingle delegation
motivation
coordination
authority
differing priors
heterogeneous priors
Van den Steen, Eric
The Limits of Authority: Motivation versus Coordination
title The Limits of Authority: Motivation versus Coordination
title_full The Limits of Authority: Motivation versus Coordination
title_fullStr The Limits of Authority: Motivation versus Coordination
title_full_unstemmed The Limits of Authority: Motivation versus Coordination
title_short The Limits of Authority: Motivation versus Coordination
title_sort limits of authority motivation versus coordination
topic delegation
motivation
coordination
authority
differing priors
heterogeneous priors
url http://hdl.handle.net/1721.1/37305
work_keys_str_mv AT vandensteeneric thelimitsofauthoritymotivationversuscoordination
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