Mathieu Faure : mathieu.faure[at]univ-amu.fr
Gaëtan Fournier : gaetan.fournier[at]univ-amu.fr
This paper studies a firm's organisational responses if its agents misevaluate information. If a manager overreacts to unusual events, it may be desirable for the firm to adopt the management practice management-by-exception. I develop a theoretical framework to study this technique and derive conditions under parsimonious assumptions for when it should be adopted. Moreover, I show how further assumptions can re fine the model's predictions, establishing a direct link between the manager's overresponsiveness and organisational rigidity. The strategy is implemented by controlling the information that the manager receives. In fact, in the absence of information transmission and processing costs, it may be optimal to not send inherently valuable signals concerning the economy's state to the manager.