2010/08 | LEM Working Paper Series | |
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How to get what you want when you do not know what you want. A model of incentives, organizational structure and learning |
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Luigi Marengo, Corrado Pasquali |
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Keywords | ||
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Incentives, Organizational Structure, Learning
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Abstract | ||
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In this paper we present a model of the interplay between learning,
incentives and the allocation of decision rights in the context of a
generalized agency problem. Within this context, not only actors face
conflicting interests but diverging cognitive ?visions? of the right
course of action as well. We show that a principal may obtain the
implementation of desired organizational policies by means of
appropriate incentives or by means of appropriate design of the
allocation of decisions, when the latter is cheaper but more
complex. We also show that when the principal is uncertain about which
course of action is more appropriate and wants to learn it from the
environment, organizational structure and incentives interact in
non-trivial ways and must be carefully tuned. When learning is not at
stake, incentives and organizational structure are substitutes. When
instead learning is at stake, organizational structure and incentives
may complement each other and have to be fine tuned according to the
complexity of the learning process and the competitive pressure which
is put on fast or slow learning.
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