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The Architecture of Economic Systems: Hierarchies and Polyarchies

Raaj Sah () and Joseph Stiglitz

American Economic Review, 1986, vol. 76, issue 4, 716-27

Abstract: The authors present new ways of looking at economic organizations andsystems. Individuals' judgments entail errors (they sometimes reject good projects and accept bad projects). The architecture of an economicsystem, specifying how the decision making units are organized togetherwithin a system, who gathers what information, and who communicates what with whom, affects its performance both because it influences thenature of errors that individuals make within the system, and becauseit has a critical effect on the aggregation of individuals' errors. Theperformance of two polar architectures, decentralized (polyarchical) versus centralized (hierarchical) decision-making authorities are analyzed and compared. Copyright 1986 by American Economic Association.

Date: 1986
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