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original papers: Project evaluation and organizational form

Thomas Gehrig, Pierre Regibeau () and Katharine Rockett

Review of Economic Design, 2000, vol. 5, issue 2, 177-199

Abstract: In situations of imperfect testing and communication, as suggested by Sah and Stiglitz (AER, 1986), organizational forms can be identified with different rules of aggregating evaluations of individual screening units. In this paper, we discuss the relative merits of polyarchical organizations versus hierarchical organizations in evaluating cost-reducing R&D projects when individual units' decision thresholds are fully endogenous. Contrary to the results of Sah and Stiglitz, we find that the relative merit of an organizational form depends on the curvature of the screening functions of the individual evaluation units. We find that for certain parameters organizations would want to implement asymmetric decision rules across screening units. This allows us to derive sufficient conditions for a polyarchy to dominate a hierarchy. We also find conditions for which the cost curves associated with the two organizational forms cross each other. In this case the optimal organizational form will depend on product market conditions and on the "lumpiness" of cost-reducing R&D.

Keywords: Organisations; screening; information aggregation; hierarchies; polyarchies (search for similar items in EconPapers)
JEL-codes: D23 D83 L22 (search for similar items in EconPapers)
Date: 2000-07-06
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