When does coordination require centralization? The roles of organizational inertia and diversity

We consider a multidivisional organization’s choice between a decentralized structure and a centralized one. Each division has its own private information and can fully commit to a communication rule. We show that the need for coordination would favor centralization due to the optimality of the decisions. However, if each division has a bias towards inertia, decentralization may be beneficial because the division managers may be unwilling to disclose information to the headquarters due to the conflict of interest caused by the divisions’ inertia biases. We find that decentralization dominates centralization in a larger set of environments in a diverse organization than in a homogeneous organization.

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Publication Details

Journal
Journal of Economic Behavior & Organization
Published
2025-07-26
DOI
https://doi.org/10.1016/j.jebo.2025.107114
Primary Topic
Experimental Behavioral Economics Studies
Type
article
Field-Weighted Citation Impact
0.00

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article

When does coordination require centralization? The roles of organizational inertia and diversity

Hitoshi Sadakane, Ming Li
Journal of Economic Behavior & Organization
Experimental Behavioral Economics Studies
article

When does coordination require centralization? The roles of organizational inertia and diversity

Hitoshi Sadakane, Ming Li
article en

Abstract

We consider a multidivisional organization’s choice between a decentralized structure and a centralized one. Each division has its own private information and can fully commit to a communication rule. We show that the need for coordination would favor centralization due to the optimality of the decisions. However, if each division has a bias towards inertia, decentralization may be beneficial because the division managers may be unwilling to disclose information to the headquarters due to the conflict of interest caused by the divisions’ inertia biases. We find that decentralization dominates centralization in a larger set of environments in a diverse organization than in a homogeneous organization.

Journal of Economic Behavior & OrganizationVol. 237
Center for Interuniversity Research and Analysis on Organizations (CA), Concordia University (CA), Kobe University (JP)
Social Sciences and Humanities Research Council of Canada, Japan Society for the Promotion of Science
Reduced inequalities
Openalex Percentile: Top 82%
Experimental Behavioral Economics Studies
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