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Real-Time Hierarchical Resource Allocation with Quadratic Costs

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Van Zandt, Timothy

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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.

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Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4022.

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Date of creation: Aug 2003
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Handle: RePEc:cpr:ceprdp:4022

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Related research
Keywords: bounded rationality; decentralization; hierarchies; real-time computation; resource allocation;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

References listed on IDEAS
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  1. Kieron Meagher & Timothy Van Zandt, 1998. "Managerial costs for one-shot decentralized information processing," Review of Economic Design, Springer, vol. 3(4), pages 329-345. [Downloadable!] (restricted)
  2. Bolton, Patrick & Dewatripont, Mathias, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 809-39, November. [Downloadable!] (restricted)
  3. Kenneth R. Mount & Stanley Reiter, 1990. "A Model of Computing with Human Agents," Discussion Papers 890, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  4. Friedman, Eric J & Oren, Shmuel S, 1995. "The Complexity of Resource Allocation and Price Mechanisms under Bounded Rationality," Economic Theory, Springer, vol. 6(2), pages 225-50, July.
  5. Mount, Kenneth R & Reiter, Stanley, 1996. "A Lower Bound on Computational Complexity Given by Revelation Mechanisms," Economic Theory, Springer, vol. 7(2), pages 237-66, February.
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  6. Timothy Van Zandt, 1998. "The scheduling and organization of periodic associative computation: Efficient networks," Review of Economic Design, Springer, vol. 3(2), pages 93-127. [Downloadable!] (restricted)
  7. Stanley Reiter, 1995. "Coordination and the Structure of Firms," Discussion Papers 1121, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  8. Roy Radner & Timothy Van Zandt, 1992. "Information Processing in Firms and Returns to Scale," Annales d'Economie et de Statistique, ADRES, issue 25-26, pages 15, Janvier-J. [Downloadable!]
  9. Kenneth R. Mount & Stanley Reiter, 1994. "On Modeling Computing with Human Agents," Discussion Papers 1080, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  10. Van Zandt, Timothy, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 633-58, July. [Downloadable!] (restricted)
  11. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September. [Downloadable!] (restricted)
  12. Timothy Van Zandt, 1997. "Real-Time Hierarchical Resource Allocation," Discussion Papers 1231, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  13. Van Zandt, Timothy, 2004. "Balancedness of Real-Time Hierarchical Resource Allocation," CEPR Discussion Papers 4276, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Michael Keren & David Levhari, 1983. "The Internal Organization of the Firm and the Shape of Average Costs," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 474-486, Autumn. [Downloadable!] (restricted)
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