Organizational Structure and Managerial Decisions

Abstract

We investigate how the organizational structure of a firm influences the decision making of its top management. Different organizational structures lead information to be processed in different ways by the individual decision makers, potentially creating an informational cascade within the organization. We analyze two organizational structures: the first inducing sequential information processing, the second inducing batch information processing. In particular, we characterize the optimal organizational structure using the signal precision of the top manager, i.e., the value of his private information.

Key Words:

• Organization
• Informational Cascade
• Decision Theory

JEL classifications:

• M10
• M4
• M12