Information and authority in multidivisional organizations

Abstract This article investigates the role of different kinds of information in the allocation of decision authority. In a multidivisional organization, divisions have access to common- or private-interest pieces of information, which can be shared via cheap talk communication. While common-interest information aligns incentives and is always beneficial from the headquarters’ perspective, private-interest information not only creates a bias in communication but also can act as noise when garbled with common-interest information. Hence, private-interest information can be detrimental from the headquarters’ perspective. As a consequence, when the headquarters selects the decision-maker, the allocation of authority not only depends on the payoff relevance of the divisions, but also on the details of the available information (JEL D83, D82).