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Rational Inattention and Organizational Focus

Author

Listed:
  • Wouter Dessein
  • Andrea Galeotti
  • Tano Santos
Abstract
This paper studies optimal communication flows in organizations. A production process can be coordinated ex ante, by letting agents stick to a prespecified plan of action. Alternatively, agents may adapt to task-specific shocks, in which case tasks must be coordinated ex post, using communication. When attention is scarce, an optimal organization coordinates only a few tasks ex post. Those tasks are higher performing, more adaptive to the environment, and influential. Hence, scarce attention requires setting priorities, not just local optimization. Our results provide microfoundations for a central idea in the management literature that firms should focus on a limited set of core competencies.

Suggested Citation

  • Wouter Dessein & Andrea Galeotti & Tano Santos, 2016. "Rational Inattention and Organizational Focus," American Economic Review, American Economic Association, vol. 106(6), pages 1522-1536, June.
    • Handle: RePEc:aea:aecrev:v:106:y:2016:i:6:p:1522-36
    Note: DOI: 10.1257/aer.20140741
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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