Advanced Search
MyIDEAS: Login

The Architecture of Economic Systems: Hierarchies and Polyarchies

Contents:

Author Info

  • Raaj Kumar Sah
  • Joseph E. Stiglitz

Abstract

This paper presents some new perspectives on the structure and performance of alternative economic organizations. We posit that decision makers make errors of judgement (for example, they sometimes select bad projects while rejecting good projects), and that how these errors are aggregated within different organizations depends on their architecture (for example, on how individuals are organized together). Using this framework, we compare the performances of two polar forms of organizations: hierarchies and polyarchies. Assuming judgmental abilities of individuals are similar in the two systems, we show that polyarchies accept a larger proportion of bad projects (compared to hierarchies) whereas hierarchies reject a larger proportion of good projects. We then determine the conditions under which polyarchies have higher or lower expected profit. The conditions under which polyarchies perform better appear to be more plausible and, moreover, this conclusion holds also in the case where the rules for accepting or rejecting projects are rationally determined based on the information available to individuals. The architecture of organizations also affects their portfolio of available projects; we determine conditions under which polyarchies have better or worse portfolios compared to those available to hierarchies.There are many possible extensions of our approach. Among them are the analysis of internal structure of firms, selection of managers (by other managers) and the reproduction and self-perpetuation of organizations over time.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w1334.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1334.

as in new window
Length:
Date of creation: Apr 1984
Date of revision:
Publication status: published as Sah, Raaj Kumar and Joseph E. Stiglitz. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, Vol. 76, No. 4 , (September 1986), pp. 716-727.
Handle: RePEc:nbr:nberwo:1334

Note: PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Sah, Stiglitz 1986: Kdaj je tržni kapitalizem učinkovitejši od hierarhičnih struktur?
    by andee in V krizi smisla tiči misel on 2010-04-14 12:00:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1334. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.