Using a moral hazard model, this study examines the relationship between environmental uncertainty and the adoption of decentralized IT governance. We show that this relationship is determined by a trade-off between the need for processing local information and the concern on moral hazard. The trade-off results in an inverted-U-shaped relationship between environmental uncertainty and decentralization in IT governance. The increase in environmental uncertainty first increases and then decreases the likelihood of adopting decentralized IT governance, and thus decentralized IT governance is less likely to be adopted when the external environment is either highly stable or highly turbulent. We validate our analytical result using a sample of 455 business sites of Fortune 1000 companies. The empirical analysis provides evidence consistent with an inverted-U-shaped relationship between environmental uncertainty and decentralization in IT governance.
Xue, Ling; Ray, Gautam; and Gu, Bin, "A Moral Hazard Perspective on Environmental Uncertainty and IT Governance" (2008). AMCIS 2008 Proceedings. 195.