The members of a firm must work together on a big joint project.  There are many ways the project could be implemented.  One obvious procedure is dictatorial: the CEO simply choses her favorite option and demands that everyone follow her orders.  This is sometimes called directive or narcissistic leadership.  Another procedure is more participative: The CEO asks everyone their opinion and a decision is made.  Everyone might vote so the decision is made democratically or at the very least the CEO makes everyone’s opinions into account before making the decision herself.

In an emergency situation where decisions need to be made quickly, dictatorial leadership makes sense.  If you are in the middle of capturing Bin Laden, there is no time to mess around with participative leadership.  One person gives orders and everyone follows.

But in many other situations, it is wise to ask everyone’s opinions before embarking on a joint project.  The obvious rationale is that information is dispersed and communication might help to aggregate information.  The less obvious reason (to economists!): If people do not feel they “buy into” the decision, they are not going to work hard.  There may be no information to aggregate but the mere fact that everyone votes means that even the minority who voted against the decision feel committed to it.

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