Decentralization, aggregation, control loss and costs in a hierarchical model of the firm

Delegation of pricing authority to the sales force: An agency-theoretic perspective of its determinants and impact on performance

“…Corporate managers take control of decisions, i.e., centralize, when they are more certain about how input efforts relate to outputs as they think they can make more effective decisions. Moreover, delegating responsibilities to agents who have better access to the necessary information in highly uncertain environments makes sense because it (i) reduces the firm's costs of gathering the information required to reduce uncertainty and make better decisions (Nagar, 2002), and (ii) minimizes intra-firm information transmission inefficiencies such as leaks (Keren & Levhari, 1989) and delays (Radner, 1993;van Zandt, 1998), which affect the quality of decisions and their ultimate implementation in the field. Based on these arguments, we hypothesize:…”

Organizational Form Outside the Principal–agent Paradigm

“…Levhari (1979, 1983) examine the relationship between the optimal number of agents, optimal number of levels in the organization, and amount of information to be processed for the case where each agent at the same level of a hierarchy must process or communicate the same amount of information. Keren and Levhari (1989) further modify the model of hierarchy by allowing for delegation of decision-making at the cost of some loss of control. Yang and Hogbin (1990) apply this model structure to the analysis of trade between hierarchically organized communities.…”

The Creation of A Middle‐Management Level by Entrepreneurial Ventures: Testing Economic Theories of Organizational Design

“…First, information overload problems that hurt the decision‐making activity within the firm are alleviated. The concentration of all decisions with the owner‐manager in a two‐layer hierarchy reduces the number of decisions that are made per unit of time in comparison with a situation in which some decisions are decentralised to middle managers and made concurrently (Keren and Levhari, , ; Radner, ; Van Zandt, . See also Radner, ).…”

“…For these individuals it is extremely profitable to devote time and attention to strategic decisions, while leaving responsibility for operating decisions to middle managers. Devoting time and attention to strategic decisions is also very profitable for owner‐managers of firms that operate in an uncertain, rapidly changing business environment (Keren and Lehvari, ; Radner, ) or face tough competition (Meagher and Wait, ), as in these situations timely decision‐making is fundamental.…”