Unprincipled principals: Strategic communication and organizational performance

Abstract

Our study examines the implications of communication among individuals in organizations for both the process and outcome of decision-making (Arrow 1974). By and large, research on how communication influences decision-making in organizations has taken a bottom-up approach (Aghion and Tirole 1997). For instance, in the principal-agent paradigm, the canonical example highlights how a principal makes decisions based on strategic communication by a better informed and self-interested agent (Crawford and Sobel 1982, Dessein 2002). Such upstream strategic communication is central to the analysis of supply chain management (Lee et al. 1997), designing a sales force compensation plan (Basu et al. 1985), and the annual budgeting process (Lambert 2001). In contrast, we take a top-down approach to examining strategic communication in organizations.