Research Statement
Dimitri Migrow
October 2015
My work seeks to explain how firms should organize their internal structures so as
to maximize relevant information available to those charged with making decisions.
One of the central problems in firms is that the information relevant for decisions is
dispersed among multiple employees. Typically, the interests of the management and
the employees are not perfectly aligned. Without proper incentives the employees can
withhold and/or distort decision-relevant information. Since the contracts are usually
imperfect and a large portion of informational exchange takes place informally, the
management cannot use formal contracts to incentivize employees to reveal their
privately held information. My objective is to look at other instruments than formal
contracts.
In my job market paper “Designing Communication Hierarchies to Elicit Information” I look at a situation in which the manager can only commit to an intraorganizational communication tree network. This specifies which of the organizational members talk to whom, and in which order. Focus on tree networks comes
naturally from the prominence of hierarchies in real-world organizations. I study the
optimal design of communication tree networks where the manager is uninformed
and relies on information provided by imperfectly informed employees (I call them
experts) who may have different preferences over managerial action. Communication
takes form of an informal and costless exchange of information (“cheap talk”) as in
Crawford and Sobel (1982).
An intuitive starting point for an optimal network is a star, where the DM is
at the center of the star and receives individual reports from each expert. In this
case, no expert can distort the reports of the others. However, my first result shows
that an optimally designed coordination between the experts always generates the
same outcomes as a star network, and can sometimes generate an additional equilibrium which strictly dominates a star network for the manager. The improvement
arises because coordination in reports gives experts a possibility to report pooled
information in a coarse way.
I, further, show that an optimal communication network is characterized by dividing experts into groups of mostly similar biases to generate the most efficient
report coordination within groups. Each group has a group leader who receives direct reports from other group members and reports the aggregate information in a
distorted way. This result corresponds to the finding in seminal managerial studies of
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Tuchman and Scanlan (1981) and Allen (1977) on the importance of internal communication stars - employees who collect information from other employees and report
it possibly in a distorted way - for information transmission within organizations.
Generally, the optimal communication network solves the trade-off between a
“coordination” force and an “uncertainty force”. Coordination force groups experts
together in order to enable an optimal coarsening of pooled information. Uncertainty
force separates the experts such that an expert cannot observe the reports of some
other experts. Less information implies that the incentive contraints are pooled
together because they are formulated in expectation. Therefore, an expert faces less
constraints which ensure that he adheres to his reporting strategy.
I identify the range of expert’s biases for which an optimal network consists of a
single group and therefore coordination is the dominating force. This happens if the
biases of all experts are sufficiently far away from the bias of the manager and the
only informative report requires the entire information to be pooled, and distorted,
by a single group leader.
In my second project “Communication and Delegation in a Game with Evidence”
I assume that the manager has an additional instrument at hand - she can commit
to both communication structures and the allocation of decision rights. Delegation
of authority is a prominent theme in organizational design (Gibbons et al., 2013)
but the question of how to allocate authority in a firm with imperfectly informed
employees who can withhold their information has not been given an answer yet.
I study the choice between centralization and decentralization with two experts
and a manager, when experts receive noisy and verifiable evidence and the manager
is uninformed about the state. There is a single final policy decision to be made.
The manager can either choose the policy herself or to allocate the decision right to
any of the experts. Further, she can commit to communication channels between the
players. I study conditions under which delegation combined with decentralized communication outperforms centralization. This happens because delegation encourages
information sharing between the experts. Two conditions have to hold for a manager
to benefit from decentralization. First, the expert who chooses policy cannot be too
biased towards the manager. Second, his preferences should be closer to those of the
othert expert than the manager. In this case, the other expert is willing to reveal
more information to the first expert compared to the centralized case.
My future work is motivated by the managerial literature on the importance
of external information sources for organizational performance. There are multiple
accounts on the importance of “boundary spanning activities” by the employees it means, activities connected to receiving information from external sources - and
their location in intra-organizational communication structures. However, boundary
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spanning activities, and positions in organizational networks are typically taken as
given. I propose a model in which both aspects are optimally chosen by the management. A manager decides which employees have access to information internal to the
firm (for example, about particular products produced by the firm), and which have
access to external information sources (for example, about products of competitors,
or local market conditions). The manager, further, optimally chooses communication structures between the players. Once information from both sources is collected
by the employees, the players communicate according to a specified communication
network and the manager chooses the policy which best matches the information
available to her.
Allen, Thomas J. (1977): “Managing the Flow of Technology.” Cambridge, MA: MIT
Press.
Crawford, Vincent and Joel Sobel (1982): “Strategic information transmission.”
Econometrica, 50, 1431-1452.
Gibbons, Robert, Niko Matouschek, and John Roberts (2013): “Decisions in organizations.” In The Handbook of Organizational Economics, ed. Robert Gibbons and
John Roberts, 373- 431. Princeton University Press.
Tushman, Michael and Thomas Scanlan (1981): “Boundary spanning individuals:
Their role in information transfer and their antecedents.” Acad. Management J.
24(2) 289305.
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