We take the hierarchical resource allocation model in Van Zandt (2003a) and derive a simpler, reduced-form model of balanced hierarchies. This model uses continuous approximations; we derive bounds on the errors due to these approximations. We then give results that indicate that optimal hierarchies in the general model of are approximately balanced. In particular, we show that aggregation should be balanced if the hierarchical structure is balanced, and we show the hierarchical structure should be balanced if aggregation is balanced.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4276.
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
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