Hierarchies and information-processing organizations

Hao Li

Review of Economic Design, 1999, vol. 4, issue 2, 126 pages

Abstract: This paper analyzes organizational structures that minimize information processing costs for a specific organizational task. Organizations consist of agents of limited ability connected in a network. These agents collect and process information, and make decisions. Organizations implement strategies - mappings from environmental circumstances to decisions. The strategies are exogenously given from a class of "pie" problems to be defined in this paper. The notion of efficiency is lexicographic: the primary criterion is minimizing the number of agents, and the secondary criterion is minimizing the number of connections between the agents. In this modeling framework, efficient organizations are not hierarchical for a large number of problems. Hierarchies often fail to exploit fully the information processing capabilities of the agents because in a hierarchy, subordinates have a single superior.

Keywords: Network; strategy; efficiency (search for similar items in EconPapers)
JEL-codes: D23 D70 D83 (search for similar items in EconPapers)
Date: 1999-06-24
Note: Received: 1 December 1995 / Accepted: 11 October 1998
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Citations: View citations in EconPapers (4)

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