On Organizational Decision Rules and Innovative Activity

We analyze a model in which agents exert effort to create innovations within an organization. When payments are infeasible, the decision on the implementation of a proposal is shown to be made by simple monotonic decision rules. Then we look for optimal rules in several contexts. A trade-off arises between the use of information and the incentives created by a rule. If the former dominates it will currently be optimal to install a hierarchy. Otherwise granting autonomy to the innovators may be better. The unanimity rule may be optimal if average proposals are bad for the organization and a strong filtering is necessary.