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Hierarchies and information-processing organizations

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  • Hao Li

    ()
    (School of Economics and Finance, The University of Hong Kong, Pokfulam Road, Hong Kong)

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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.

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Bibliographic Info

Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 4 (1999)
Issue (Month): 2 ()
Pages: 101-126

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Handle: RePEc:spr:reecde:v:4:y:1999:i:2:p:101-126

Note: Received: 1 December 1995 / Accepted: 11 October 1998
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Related research

Keywords: Network; strategy; efficiency;

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Cited by:
  1. Barr, Jason & Saraceno, Francesco, 2005. "Cournot competition, organization and learning," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 277-295, January.
  2. Orbay, Hakan, 2002. "Information Processing Hierarchies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 370-407, August.

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