Working Paper: CEPR ID: DP13938
Authors: Wouter Dessein; Desmond Hofu Lo; Chieko Minami
Abstract: We explore the relationship between the volatility of a firm's local environment, the need for coordination among sub-units, and a firm's organizational structure. Using micro-level data on a large retailer, we empirically test and provide support for our hypothesis that a more volatile local environment results in more decentralization only when coordination needs are small or moderate. In contrast, more local volatility is associated with more centralization when coordination needs are high. Our evidence supports theories that argue that centralized organizations are better at coping with local shocks when coordinated adaptation is important.
Keywords: task delegation; coordinated adaptation; local volatility; local information; organization design
JEL Codes: D21; D22; L2; M5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local volatility (C58) | decentralization (H77) |
| local volatility (C58) | centralization (H77) |
| coordination needs (P11) | decentralization (H77) |
| coordination needs (P11) | centralization (H77) |
| asymmetric information (D82) | delegation (M54) |
| local volatility (C58) | delegation (M54) |
| local volatility + coordination needs (F12) | managerial authority (M54) |