Managerial Leadership, Truth-Telling and Efficient Coordination

Abstract

We study the tradeoffs between managerial control and delegation using a new experimental game, the manager-subordinate game. Actions for two subordinates are either chosen independently by the subordinates (delegation) or imposed by a manager (managerial control). The manager-subordinate game combines four properties: (1) All parties benefit if the subordinates coordinate their actions. (2) The state of the world varies, changing which outcome is efficient. (3) Subordinates have differing preferences over which common course of action should be chosen. (4) Subordinates know the state of the world, but the manager does not. Efficient coordination requires coordinating subordinates’ action and utilizing their private information. We find that total efficiency is highest with a combination of managerial control and free-form chat between the three players. This combination works because subordinates rarely lie about their private information, making efficient coordination possible. The frequency of truth-telling contrasts with findings from the experimental literature on lying.