We analyse the design of decision rules by a principal who faces an informed but biased agent and who is unable to commit to contingent transfers. The contracting problem reduces to a delegation problem in which the principal commits to a set of decisions from which the agent chooses his...

We examine how cheap talk communication between managers within the same firm depends on the type of decisions that the firm makes. A firm consists of a headquarters and two operating divisions. Headquarters is unbiased but does not know the demand conditions in the divisions' markets. Each...

We examine the relationship between the organization of a multi-divisional firm and its ability to adapt production decisions to changes in the environment. We show that even if lower-level managers have superior information about local conditions, and incentive conflicts are negligible, a...

This paper compares centralized and decentralized coordination when managers are privately informed and communicate strategically. We consider a multidivisional organization in which decisions must be adapted to local conditions but also coordinated with each other. Information about local...

We analyze a cheap talk game with partial commitment by the principal. We first treat the principal's commitment power as exogenous and then endogenize it in an infinitely repeated game. We characterize optimal decision making for any commitment power and show when it takes the form of threshold...

This paper compares centralized and decentralized price setting by a firm that sells a single product in two markets, but is constrained to set one price (e.g., due to arbitrage). Each market is characterized by a different linear demand function, and demand conditions are privately observed by...

We endogenize separation in a search model of the labor market and allow for bargaining over the continuation of employment relationships following productivity shocks to take place under asymmetric information. In such a setting separation may occur even if continuation of the employment...

An important element of the cost of distance is time taken in delivering final and intermediate goods. We argue that time costs are qualitatively different from direct monetary costs such as freight charges. The difference arises because of uncertainty. Unsynchronised deliveries can disrupt...

Much of the excitement around the North American Free Trade Agreement (NAFTA) has been generated by anticipations of a strongly foreign investment response. Nevertheless, the plethora of applied papers about the NAFTA have all either ignored DFI or kept it exogenous. In this paper we provide...

There is a substantial empirical literature quantifying the positive relationship between city size and productivity. The paper draws out the implications of this productivity relationship for evaluations of urban transport improvements. A theoretical model is developed and used to derive a...