Speed and Quality of Collective Decisions II Incentives for Information Provision Hans Peter Grüner und Elisabeth Schulte

The issue European council of ministers with 25 members –Decisions of foreign policy, fiscal policy, expenditure, … ECB council with 25 plus 6 members Nato… How do we design institutions such that they provide fast decisions with high quality? Or more sophisticated: What is the efficient frontier (speed, quality)?

Radner 1993 Processors: 4 Delay: 7 Processors: 4 Delay: 5

The research programme Add bounded rationality and incentive constraints to Radner‘s model. Schulte and Grüner 2004: Speed and quality of collective decisions I: Imperfect information provision (forthcoming: Journal of Economic Theory) –Task: pairwise comparison of objects –Exogenous error probability –Efficiency along the dimensions (P, delay, quality) –Reduced trees are efficient Grüner and Schulte (2004) Speed and quality of collective decisions II: Incentives for Information provision

How to construct a reduced tree

The model…

Transformation into a game Nature No effort effort No efforteffort

Strategies Strategy: Plan what to do effort, no effort and what to report, dependent upon History, i.e. previous effort decisions, signals read, signals received.

The equilibrium concept Nash equilibrium –(Equilibrium plans are consistent in the following sense: Given the equilibrium strategies of the other players, no player wants to revise his strategy along the play.) Two restrictions on the set of equilibria: –Players who are not perfectly informed about the sum they should report, report the expected value –All players always add their information to the reports they receive.

Evaluation of networks

1. A single player 1 Player, n objects.

The incentive effect of parallel processing

2. Some properties of balanced trees and reduced trees Centralized Tree 2 T Tree

Centralized trees

Equilibria in centralized trees Full effort equilbrium P-2 effort equilbrium 1 - effort equilbrium (…) c no effort equilbrium

Inefficient decentralization

3. Comparison of hierarchies and main result

Conclusion Skip level reporting is efficient (speed, classical surplus) No trade- off speed – quality (given number of managers) Extensions: –Different cost of different tasks –Different delays of different tasks –Different objectives of different managers –Ex-post verifiablity and monetary incentives