Organizing for Change: the Optimality of Pro-changer Organizations

Abstract: I study a decision process of an organization that faces a problem of choosing between the status quo project (``no change'') and the new project (``change''). The organization consists of a decision maker and an implementer. The implementer first chooses a costly effort to develop a new project (``idea generation'' or ``initiation''). If it is developed, the implementer chooses either to disclose or conceal the evidence to the decision maker. If the implementer discloses the evidence, the decision maker formally selects either the status quo project or the new project. Otherwise, only the status quo project is available. The implementer then chooses an implementation effort to execute the selected project (``idea implementation''). While both the decision maker and the implementer prefer the success of the implemented project to its failure, they have intrinsic and possibly divergent preferences over two projects. I show that the principal of the organization, who is unbiased, optimally chooses a pro-changer as a decision maker even though the implementer is also a pro-changer, and it is feasible to counter-balance the implementer's bias by hiring an anti-changer or to choose an unbiased decision maker who shares the same preferences as the principal.