Organizational Processes with Incomplete Contracts

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9320856 Rotemberg This research explores two related issues of organization structure. The first issue is why conflicts arise and why the conflicts take on predictable forms. The second aim is to understand the process for allocating formal authority. In the study the basic question that is asked is which groups and individuals tend to be put in charge of various decisions? In order to understand the process, the study concentrates on the canonical conflict between marketing and production departments. Usually, the manufacturing section wants to produce relatively few products on a large scale while the marketing section would prefer to have a "complete product line". One explanation for this is that past activity within the firm has led employees in different areas to learn different things. On the second issue of formal authority, the study seeks to develop a model where costs to information flow lead firms to put certain individuals in authority but the authority and power do not always reside in the same person. The results from this study would provide a basis for understanding the cases where firms benefit from putting valuable employees in authority and those where they do not. ***