Vision and Flexibility

An effective leader must have a clear vision and a strong will to stand by it, even in turbulent times. At the same time, though, it is also equally important to be open-minded and flexible enough to respond objectively to new information without being prejudiced by prior information. This paper illustrates how these seemingly contradictory qualifications are related and determined in a model of intrapersonal conflicts. We consider a decision maker who is capable of deceiving herself and manipulating information in some particular way to construct a rosy view of the world. There is a cost of doing so, however, because a distorted belief leads to a distorted action which is in general less efficient. This tradeoff creates a tension within herself and constrains the extent of information manipulation, thereby allowing us to identify the determinants of vision and flexibility. Among other things, we show that vision and flexibility are substitutes, and their respective levels depend crucially on attributes such as self-confidence level and fragility as well as the strength of willpower.Vision, Flexibility, Intrapersonal conflict, Confirmation bias, Willpower, Self-confidence.

Vision and Flexibility in a Model of Cognitive Dissonance

This paper explores the consequences of cognitive dissonance, coupled with time-inconsistent preferences, in an intertemporal decision problem with two distinct goals: acting decisively on early information (vision) and adjusting flexibly to late information (flexibility). The decision maker considered here is capable of manipulating information to serve her self-interests, but a tradeoff between distorted beliefs and distorted actions constrains the extent of information manipulation. Building on this tradeoff, the present model provides a unified framework to account for the conformity bias (excessive reliance on precedents) and the confirmatory bias (excessive attachment to initial perceptions).

Education as advertisement

The paper perceives education as a type of money burning activity, much like advertisement, and examines its effect on social welfare. In a model where the employer's job assignment also functions as a signal a la Waldman (1984), there exists a separating equilibrium in which education credibly conveys information even when the single-crossing property fails to hold. Moreover, we also show that education as advertisement can actually be welfare-improving. This result indicates that education can be meaningful and even socially desirable even if its sole role is simply to waste resources.

Dynamically Sabotage-Proof Tournaments

This paper examines a two-period tournament where agents may possibly engage in destructive sabotage activities. Under plausible circumstances, sabotage proves to be an effective tool for low-ability agents, especially when they are faced with high-ability agents. The possibility of sabotage then gives rise to a dynamic concern, similar to the Ratchet effect, because an agent runs a risk of becoming the target of sabotage by signaling his high ability in early stages. In this dynamic setting, we first establish an impossibility result where the mere possibility of sabotage makes it impossible to implement the first-best effort due to this dynamic concern. Given this result, we then offer two distinct incentive schemes, fast track and late selection, to circumvent this problem. The fast-track scheme is likely to prevail when the production process values diversity in inputs (submodular technologies) while the late-selection scheme is to prevail when it values homogeneity (supermodular technologies). The present model thus offers a mechanism through which both fast track and late selection arise in a unified framework, which can explain the difference in managerial practices between the US and Japan.Sabotage; Tournament; Fast track; Late selection; Supermodularity; Submodularity

Contracting with Self-Esteem Concerns

It is widely accepted in social psychology that the need to maintain and enhance self-esteem is a fundamental human motive. We incorporate this factor into an otherwise ordinary principal-agent framework and examine its impact on the optimal incentive scheme and the agent's behavior, especially focusing on a form of intrapersonal strategy known as self-handicapping. Incorporating self-esteem concerns into a contracting situation yields an implication that goes against the conventional wisdom: the standard tradeoff between risk and incentives may break down in the presence of self-esteem concerns because uncertainty mitigates the need for self-handicapping, providing a potential reason for why we do not empirically observe this tradeoff in a robust manner. We characterize an intuitive condition for this anomaly to arise and present a set of testable implications. Along the way, we also show that the fragility of self-esteem (the variance) is just as important as its level (the mean) in selecting agents. Finally, this simple logic is applied to a team problem to show why and how people are better motivated under team production than under individual production.Self-esteem, Bayesian learning, Tradeoff between risk and incentives, Contract

Why Hierarchy? Communication and Information Acquisition in Organizations

In most firms, if not all, workers are divided asymmetrically in terms of authority and responsibility. In this paper, we view the asymmetric allocations of authority and responsibility as essential features of hierarchy and examine why hierarchies often prevail in organizations from that perspective. The focus of attention is on the tradeoff between costly information acquisition and costless communication. When the agency problem concerning information acquisition is sufficiently severe, the contractual arrangement which allocates responsibility asymmetrically often emerges as the optimal organizational form, which gives rise to the chain of command pertaining to hierarchical organizations. This explains why hierarchies often prevail in firms since a relatively fixed group of members must confront with new problems and come up with solutions on the day-to-day basis, and hence the agency problem is an issue to be reckoned with.

Autonomy and Motivation: A Dual-Self Perspective

This paper provides a simple autonomy-based model of human motivation in which a decision maker with divided selves must perform some task. The key presumption of the model is that the brain is not a unitary system which is equipped to achieve a single goal in a systematic manner; rather, it is more like an organization which is hampered by several constraints such as preference incongruence and incomplete exchange (or imperfect recall) of information. Due to these constraints, the model yields behavioral patterns that are consistent with various stylized facts of human motivation, mostly found in social psychology. The main findings of the paper are: (i) more autonomy induces more motivation; (ii) complex tasks are susceptible to motivation crowding out; (iii) small rewards are detrimental to motivation; (iv) intrinsically interesting tasks are susceptible to motivation crowding out.

Decisiveness

This paper investigates how the presence of strong leadership influences an organization's ability to acquire and process information. The key concept is the leader's decisiveness. A decisive leader can make a bold move in response to a large change in the underlying landscape, whereas an indecisive leader biases her position excessively towards the status quo. An organization led by an indecisive leader needs to accumulate unrealistically strong evidence before it changes the course of action, thereby hindering the organization's ability to adapt to a changing environment. The analysis identifies several attributes and environmental factors that impair one's decisiveness and illuminates how leadership emerges or fades in organizations. The paper also sheds light on a classical issue of whether leaders can be made, rather than are born: our answer is partially `yes' in that mutual trust among members of the organization is a critical ingredient of effective leadership.Decisiveness, Transformational leadership, Charismatic leadership, Information acquisition, Career concerns.

FDI may help rival firms

This paper presents a two-country model of duopolistic market with vertical relations which leads to a paradoxical result: when upstream firms possess sufficient bargaining power, cost-reducing FDI may actually enhance the rival firm's profit.Cournot competition

Cheap Talk with an Informed Receiver

This paper examines the effectiveness of cheap talk when the receiver is imperfectly informed. We show that the receiver's prior knowledge becomes an impediment to efficient communication in a model with the discrete state space: in general, the more the receiver is informed, the less information she can extract from the sender. In fact, when the receiver is as informed as the sender, no information can be conveyed via cheap talk for an arbitrarily small preference bias. This draws sharp contrast to the conventional setup where there is always a fully separating equilibrium as long as the preference bias is sufficiently small. We relate this result to issues that are critical for organizational design, such as the allocation of decision-making authority and the span of control.