Arbeitspapier
Designing organizations in volatile markets
Multinational and multiproduct firms often experience uncertainty in the relative return of conducting activities in different markets due to, for example, exchange rate volatility or the changing prospects of different products. We study how a multi-divisional organization should optimally allocate decision-making authority to its managerial members when operating in such volatile markets. To be able to adapt its decisions to local conditions, the organization has to rely on self-interested division managers to collect and disseminate the relevant information. We show that if communication takes the form of verifiable disclosure, then centralized decision-making does not suffer from information asymmetry and it allows the headquarter of the organization to better cope with the inter-market uncertainty. However, a downside of centralization is that it can discourage information acquisition, and this negative effect is amplified by the need for coordinating the activities of different divisions. As a result, the optimality of decentralized decision-making can actually be driven by a large coordination motive.
- Language
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Englisch
- Bibliographic citation
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Series: Working Paper ; No. 319
- Classification
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Wirtschaft
Asymmetric and Private Information; Mechanism Design
Personnel Economics: Compensation and Compensation Methods and Their Effects
- Subject
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centralization
decentralization
volatile markets
coordinated adaptation
information acquisition
verifiable disclosure
costly exaggeration
- Event
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Geistige Schöpfung
- (who)
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Liu, Shuo
Migrow, Dimitri
- Event
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Veröffentlichung
- (who)
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University of Zurich, Department of Economics
- (where)
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Zurich
- (when)
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2019
- DOI
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doi:10.5167/uzh-169712
- Handle
- Last update
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10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Liu, Shuo
- Migrow, Dimitri
- University of Zurich, Department of Economics
Time of origin
- 2019