original papers : Project evaluation and organizational form
AbstractIn 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.
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Bibliographic InfoArticle provided by Springer in its journal Review of Economic Design.
Volume (Year): 5 (2000)
Issue (Month): 2 ()
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Web page: http://link.springer.de/link/service/journals/10058/index.htm
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
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- Swank, Otto & Visser, Bauke, 2008. "The consequences of endogenizing information for the performance of a sequential decision procedure," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 667-681, March.
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