Mixups in the Warehouse: Centralized and Decentralized Multi-plant Firms

Lynn Hunnicutt

Economic Inquiry, 2001, vol. 39, issue 4, 537-48

Abstract: Single-plant firms choose quantity/quality levels to maximize profits. Multi-plant firms face this decision and must also choose how many decision makers to have. This article presents two case studies and a model of a multi-plant firm in which overhead costs are lower with one decision maker (centralization), but the mass of information and the need for timely decisions make occasional mixups unavoidable. Multiple decision makers (decentralization) solves the mixup problem. Standardization--treating different outlets similarly in response to costly mixups--appears in the case studies, and is demonstrated as a result in the model. Copyright 2001 by Oxford University Press.

Date: 2001
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