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Real-Time Hierarchical Resource Allocation with Quadratic Costs

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  • Van Zandt, Timothy

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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Bibliographic 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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References

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  1. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
  2. Van Zandt, Timothy, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 633-58, July.
  3. 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.
  4. Timothy Van Zandt, 1997. "Real-Time Hierarchical Resource Allocation," Discussion Papers 1231, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Mathias Dewatripont & Patrick Bolton, 1994. "The firm as a communication network," ULB Institutional Repository 2013/9595, ULB -- Universite Libre de Bruxelles.
  6. Roy RADNER & Timothy VAN ZANDT, 1992. "Information Processing in Firms and Returns to Scale," Annales d'Economie et de Statistique, ENSAE, issue 25-26, pages 265-298.
  7. 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.
  8. 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.
  9. Van Zandt, Timothy, 2004. "Balancedness of Real-Time Hierarchical Resource Allocation," CEPR Discussion Papers 4276, C.E.P.R. Discussion Papers.
  10. 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.
  11. Stanley Reiter, 1995. "Coordination and the Structure of Firms," Discussion Papers 1121, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. 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.
  13. 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.
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Cited by:
  1. Dimitri Vayanos, 2003. "The Decentralization of Information Processing in the Presence of Interactions," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 667-695, 07.

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