Umberto Garfagnini

Signaling and Experimentation in Dynamic Markets

Consider the case of a seller that can signal its own product quality but faces uncertainty about the cost of signaling. If signaling reveals information about its cost which can be used in future trades, how does learning affect signaling incentives and the informativeness of signals for buyers? Learning can reduce the value of signaling by introducing noisiness in the interpretation of future signaling decisions--the dynamic adverse selection effect. We construct and characterize properties of equilibria in which intermediate sellers types experiment with signaling. These experimental signaling equilibria are ranked with more experimentation leading to lower welfare.

The Downsides of Managerial Oversight in Signaling Environments

This paper develops a class of signaling games with monitoring to study manipulation in principal-agent relationships. An agent has been assigned to a task and can use costly effort to either signal or hide his private ability. A principal uses the observed level of effort and private monitoring to form a belief about the agents ability to decide whether or not to continue their relationship. When effort is productive (i.e., it affects the probability of success on the task), the agent can manipulate both the decision to monitor and to terminate the relationship if the principal is sufficiently uncertain about what type of agent she is facing. Separation can nonetheless arise as the unique equilibrium outcome. Despite the possibility of manipulation, the principal is generally indifferent or even better off when effort is observable but there might be cases in which hidden effort would be preferable.

What Does It Take to Get Ahead? A Signaling Theory of Presenteeism Under Managerial Oversight

This paper develops a class of signaling games with monitoring to study manipulation in principal-agent relationships. An agent has been assigned to a task and can use costly effort to either signal or hide his private ability. A principal uses the observed level of effort and private monitoring to form a belief about the agents ability to decide whether or not to continue their relationship. When effort is productive (i.e., it affects the probability of success on the task), the agent can manipulate both the decision to monitor and to terminate the relationship if the principal is sufficiently uncertain about what type of agent she is facing. Separation can nonetheless arise as the unique equilibrium outcome. Despite the possibility of manipulation, the principal is generally indifferent or even better off when effort is observable but there might be cases in which hidden effort would be preferable.

Centralize or Decentralize? How Productivity Shocks Affect Authority in Organizations

This paper identifies how productivity shocks propagate within a multi-divisional organization and induce organizational change. Key ingredients are the presence of cross-divisional spillovers, background uncertainty associated with technology choices, and local information about the riskiness of innovation. When authority is decentralized and spillovers are small, a shock that increases the productivity gap across divisions increases the relative performance of centralization over decentralization and can lead the organization to centralize authority. Centralization: i) helps to curb the innovative ambitions of the manager of the most productive division, which hurt spillovers; and ii) improves communication within the organization when communication is most needed.

The Dynamics of Authority in Innovative Organizations

Why do innovative organizations often reallocate authority? I propose a simple theory in which innovation with new technologies generates an endogenous need for coordination among divisions in the presence of negative cross-divisional externalities. A division manager has private information about the expected productivity of new technologies, which can be communicated strategically to headquarters. The organization has an advantage in coordinating technologies across divisions and can only commit to an ex-ante allocation of authority. I show that a reallocation of authority (i.e., delegation followed by centralization) can be an optimal response to localized information within an organization. Generally, the decision to reallocate authority depends on the outcome of past innovation.