Investment Criteria in Single and Multi-member Economic Organizations

Ruth Ben-Yashar and Shmuel Nitzan

Public Choice, 2001, vol. 109, issue 1-2, 13 pages

Abstract: This paper compares the determination of investment criteria in single- and multi-member organizations. Individual decisional skills are assumed to be endogenous variables that depend on the investment criteria. Our main result specifies the condition that determines the relationship between the investment criteria in single- and multi-member organizations, given the size of the multi-member organization, the decision rule it applies and the function relating the individual's decisional skills to the investment criterion. The implications of our main result are developed for special organizations such as hierarchies and polyarchies. Our analysis implies that the criteria in a multi-member organization may be stricter than the criteria set in a single-member organization, even though in the former case the organization may worsen the average decision-making ability of its members. The analysis can be applied not only in single and multi-member decision making settings, but also in some contexts of centralized and decentralized decisions. This is illustrated in the case of decisions by editors of professional journals regarding the acceptance or rejection of submitted papers. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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