Real-Time Hierarchical Resource Allocation with Quadratic Costs

Timothy Van Zandt ()

No 4022, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper presents a model in which boundedly rational members of an administrative staff calculate resource allocations in real time. We consider a class of hierarchical procedures in which information about payoff functions flows up and is aggregated by a hierarchy, while allocations flow down and are disaggregated by the hierarchy with decentralized decision making. We assume that the payoff functions are quadratic and that the payoff parameters follow first-order autoregressive processes. We define a team statistical optimality condition that formalizes the notion of decentralized decision making. We derive a reduced form that can be used to address specific questions about organizational structure and returns to scale.

Keywords: Decentralization; Hierarchies; Bounded rationality; Resource allocation; Real-time computation (search for similar items in EconPapers)
JEL-codes: D23 D83 (search for similar items in EconPapers)
Date: 2003-08
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Citations: View citations in EconPapers (6)

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