The decentralization of information processing in the presence of interactions

Dimitri Vayanos

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We propose a model of organizational decision making, in which information processing is decentralized. Our model incorporates two features of many actual organizations: aggregation entails a loss of useful information, and the decision problems of different agents interact. We assume that an organization forms a portfolio of risky assets, following a hierarchical procedure. Agents' decision rules and the organization's hierarchical structure are derived endogenously. Typically, in the optimal hierarchical structure, all agents have one subordinate, and returns to ability are at least as high at the bottom as at the top. However, these results can be reversed in the presence of returns to specialization.

JEL-codes: J1 (search for similar items in EconPapers)
Date: 2003-07
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Citations: View citations in EconPapers (14)

Published in Review of Economic Studies, July, 2003, 70(3), pp. 667-695. ISSN: 0034-6527

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Related works:
Journal Article: The Decentralization of Information Processing in the Presence of Interactions (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:452

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