Management Style in Decision Making: Top Down or Bottom Up?

This paper analyses management style as a governance mechanism in agency relationships when the lack of verifiable information restricts the contracting possibilities. Specifically, it investigates whether decision making should be supplemented by prior verification, and how these tasks should be organized, i.e. whether they should be delegated to an informed expert or not. The optimal organization design is shown to depend nonmonotonically on the divergence of objectives and the efficiency of available information technologies. Moreover, this paper demonstrates how the nature of the expert's technological advantage influences the underlying tradeoffs.