Management by Data

When does delegation make sense?

Silhouettes of people standing inside a though bubble.

A major question in organizations is whether to keep decision-making power concentrated at the top or to cede control to lower-ranked managers.

“There’s this robust idea in economics that social systems in general and organizations in particular have valuable information dispersed throughout the organization—it’s why we see so much delegation in private firms,” says Ernesto Dal Bó, the Phillips Girgich Professor of Business. However, he says, there’s little empirical research documenting whether that robust idea is true.

To analyze the tradeoffs of decentralized versus centralized control, Dal Bó, Prof. Frederico Finan, and colleagues worked with the Paraguayan government on an experiment that gave GPS cell phones to government agents who advise farmers on best practices and crop pricing. The goal was to reduce shirking among those agents prone to slack off by tracking their locations. Before cell phones were randomly assigned, researchers asked supervisors which of their agents would most benefit from the technology.

Supervisors, it turned out, knew exactly which workers would improve with additional monitoring—assessments that weren’t based on any measurable performance traits or administrative records. Their selected agents increased farmer visits by 15%, while the agents the supervisors would not have picked did not change their behavior in a meaningful way.

Decentralization, then, makes sense when a centralized authority lacks information. But the researchers also found that central government would have been just as successful if it had first run a small pilot program and used the results to learn what employee data best predicts response