Influence Costs and Implementation of Organizational Changes

We present an economic model of the process that leads to a decision to implement a change. We argue that the decision gives rise to influencing efforts as privately informed agents attempt to affect the decision to their benefit. The decision maker trades off the information benefits and costs of influencing by imposing a limit on the agents' efforts. Our analysis of this trade‐off yields the following insights. First, it is rational to approve initiation of a change, but later to reject its implementation. Second, firms with potentially high influence costs are more likely to reject initiation of a change. Third, it is often better to risk implementing an undesirable change than to allow costly collecting of all relevant information.