Bauke Visser

Organizational Communication Structure and Performance

The effect of organizational communication structure on performance is studied using a project selection framework in which heterogeneous, rational agents can reject or accept projects. A hierarchy performs better than a polyarchy in tough environments, whereas the reverse holds in friendly environments. Hierarchies can be too strict from a social welfare point of view. Indeed, if the value of profitable but rejected projects is taken into account, a single agent can perform better than a hierarchy.

HOW COMMITTEES OF EXPERTS INTERACT WITH THE OUTSIDE WORLD: SOME THEORY, AND EVIDENCE FROM THE FOMC

Some committees are made up of experts, persons who care both about the matter at hand and about coming across as able decision makers. We show that such committees would like to conceal disagreement from the public. That is, once the decision has been reached, they show a united front to the outside world. Also, if such committees are required to become transparent, for example, by publishing verbatim transcripts of their meetings, members will organize pre-meetings away from the public eye. A large part of the article is dedicated to a case study of the U.S. Federal Open Market Committee in the United States. It provides suggestive evidence supporting our theory. (JEL: D71, D72, D82, E58) (c) 2008 by the European Economic Association.

In Defense of Boards

It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behavior and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. We analyze the nature of the retention contract a board uses to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials, and that the link between bad performance and dismissal is weak.

Confidence Management: On Interpersonal Comparisons in Teams

Organizations differ in the degree to which they differentiate employees by ability. We analyze how the effect of differentiation on employee morale may explain this variation. We characterize sufficient conditions for the manager to refrain from differentiation. She refrains from differentiation when employees are of similar ability, especially if absolute levels are high. Avoiding differentiation boosts the self-image of employees. To limit the negative effects of differentiation, the managers strategy often relies on the coarsest message set possible. The likelihood that the manager differentiates depends on the presence of synergies between employees and on the convexity of the cost of effort function. Finally, we show that in the absence of commitment no differentiation is chosen too often.

Is Transparency to No Avail? Committee Decision-Making, Pre-Meetings, and Credible Deals

This discussion paper led to a publication in The Scandinavian Journal of Economics . Transparent decision-making processes are widely regarded as a prerequisite for the working of a representative democracy. It facilitates accountability, and citizens may suspect that decisions, if taken behind closed doors, do not promote their interests. Why else the secrecy? We provide a model of committee decision-making that explains the public’s demand for transparency, and committee members’ aversion to it. In line with case study evidence, we show how pressures to become transparent induce committee members to organize pre-meetings away from the public eye. Outcomes of pre-meetings are less determined, more anarchic, than those of formal meetings, but within bounds. We characterize feasible deals that are credible and will be endorsed in the formal meeting.

A Cognitive Approach to Organizational Complexity

Organizational theory has construed complexity as an objective characteristic of either the structure or the behaviour of an organization. We argue that to further our understanding it should be understood in terms of human cognition of a structure or behavior. This cognitive twist is illustrated using two theoretical approaches, whose relationship is discussed.

An Optimal Signaling Equilibrium

This paper analyses the optimal combination of costly and costless messages that a Sender uses in a signaling game if he is able to choose among all equilibrium communication strategies. We provide a complete characterization of the equilibrium that maximizes the Senders ex ante expected utility in case of uniformly distributed types and quadratic loss functions. First, the Sender often wants to avoid money burning by using the most informative cheap talk communication strategy. Second, if he does burn money, he avoids separation and only re-arranges the existing intervals of the most informative cheap talk equilibrium, possibly adding one extra interval. Money burning takes place in the second interval only.

Optimal signaling with cheap talk and money burning

We study Sender-optimal signaling equilibria with cheap talk and money-burning. Under general assumptions, the Sender never uses money-burning to reveal all states, but always wants to garble information for at least some states. With quadratic preferences and any log-concave density of the states, optimal communication is garbled for all states: money-burning, if used at all, is used to adjust pooling intervals. This is illustrated by studying in depth the well-known uniform-quadratic case. We also show how the presence of a cost of being “caught unprepared” that gives rise to a small change in a common assumption on the Receiver’s utility function makes full revelation through money-burning Sender-optimal.

Complexity, Robustness, and Performance: Trade-Offs in Organizational Design

This paper analyses the relationship between organizational complexity (the degree of detail of information necessary to correctly assign agents to positions), robustness (the relative loss of performance due to mis-allocated agents), and performance. More complex structures are not necessarily more profitable, but are less robust. One of the least complex structures always performs worst. Superior organizational performance may vanish completely due to mis-allocated agents. Organizational performance can be enhanced through training agents; re-assigning them when adequate knowledge about their characteristics is obtained through monitoring; simplifying the organizational structure; and influencing the environment. The trade-offs involved are analysed.

The Consequences of Endogenizing Information for Herd Behavior

In models of sequential decision making herd behaviour occurs if the signals smart (dumb) agents receive are (un)correlated and if agents have reputational concerns. We show that introducing costly effort to become informed about project payoffs (i) eliminates herd behaviour and (ii) shifts attention from the incentives for agent 2 to herd to agent 1 to exert effort. While the first agent anticipates the second agents behaviour, his influence is only partial. The unique equilibrium either implies delegation to the first agent; to the second agent; or has both agents participating.