Economics Department Research Seminar | Weatherhead School at Case Western Reserve University

Economics Department Research Seminar

Centralized vs. Decentralized Management: An Experimental Study

We study the tradeoffs between centralized and decentralized management using a new experiemental game, the dentralization game.  This game models an organization with two divisions and one cental manager.  Each division must choose or be assigned a product type.  Both divisions benefit from coordinating their product types, but each prefers to coordinate on products that are close to its local tastes.  The central manager aims to maximize the sum of division payoffs.  Which product type achieves this goal varies with taste shocks that are known to the divisions but not the central manager.  Under centralization, the cental manager assigns products to divisions after receiving the divisions' messages about the state of the world (i.e., the taste shock);  under decentralization, the divisons choose their own products.  We compare performance under decentralization and centralization with different matching schemes, payoff parameters, and communication protocols.  Contrary to the theory, overall performance is always higher under cetralization than under decentralization.  The only mechanism that leads to better perfomance than the babbling equiibrium, which does not use the divisions' information, combines centralization with free-form chat between the divisions and the cenral manager.

Please join the Economics Department for a research seminar.  This event is open to all Case Western Reserve University faculty, Ph.D. students, economic majors and minors, and those interested in economics research.
Contact Information:

Teresa Kabat

Friday, Dec. 1, 2017 from 12:30 p.m. to 2 p.m.
Peter B. Lewis Building
11119 Bellflower Road, Room 05
Cleveland, OH 44106-7235
United States
Speaker(s): David J. Cooper, Ph.D., Florida State University
Sponsored by: Economics Department


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