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Real-Time Hierarchical Resource Allocation

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  • Timothy Van Zandt

Abstract

This paper presents a model that distinguishes between decentralized information processing and decentralized decision making in organizations; it shows that decentralized decision making can be advantageous due to computational delay, even in the absence of communication costs. The key feature of the model, which makes this result possible, is that decisions in a stochastic control problem are calculated in real time by boundedly rational members of an adminstration staff. The decision problem is to allocate resources in a changing environment. We consider a class of hierarchical procedures in which information about cost functions flow down and are disaggregated by the hierarchy. Nodes of the hierarchy correspond not to a single person but to decision-making units within which there may be decentralized information processing. The lower tiers of multitier hierarchies can allocate resources quickly within small groups, while higher tiers are still able to exploit gains from trade between the groups (although on the basis of older informations).

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Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1231.

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Date of creation: Apr 1997
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Handle: RePEc:nwu:cmsems:1231

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Web page: http://www.kellogg.northwestern.edu/research/math/
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Related research

Keywords: decentralization; hierarchies; bounded rationality; real-time control;

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References

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  1. Laffont & Martimort, 1997. "Collusion under asymmetric information," Working Papers 152574, Institut National de la Recherche Agronomique, France.
  2. Melamad, N. & Mookherjee, D. & Reichelstein, S., 1996. "Contract Complexity, Incentives and the Value of Delegation," Papers 70, Boston University - Industry Studies Programme.
  3. Melumad, Nahum & Mookherjee, Dilip & Reichelstein, Stefan, 1992. "A theory of responsibility centers," Journal of Accounting and Economics, Elsevier, vol. 15(4), pages 445-484, December.
  4. 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.
  5. Lu Hong & Scott Page, 1994. "Reducing informational costs in endowment mechanisms," Review of Economic Design, Springer, vol. 1(1), pages 103-117, December.
  6. 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.
  7. Williams, Steven R, 1986. "Realization and Nash Implementation: Two Aspects of Mechanism Design," Econometrica, Econometric Society, vol. 54(1), pages 139-51, January.
  8. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
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Citations

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Cited by:
  1. Van Zandt, Timothy, 2003. "Real-Time Hierarchical Resource Allocation with Quadratic Costs," CEPR Discussion Papers 4022, C.E.P.R. Discussion Papers.
  2. Van Zandt, Timothy, 1995. "Hierarchical computation of the resource allocation problem," European Economic Review, Elsevier, vol. 39(3-4), pages 700-708, April.
  3. Oriana Bandiera & Andrea Prat & Raffaella Sadun & Julie Wulf, 2012. "Span of Control and Span of Activity," CEP Discussion Papers dp1139, Centre for Economic Performance, LSE.
  4. Van Zandt, Timothy, 2004. "Structure and Returns to Scale of Real-Time Hierarchical Resource Allocation," CEPR Discussion Papers 4277, C.E.P.R. Discussion Papers.
  5. Grüner, Hans Peter, 2007. "Protocol Design and (De-)Centralization," CEPR Discussion Papers 6357, C.E.P.R. Discussion Papers.
  6. Van Zandt, Timothy, 2004. "Balancedness of Real-Time Hierarchical Resource Allocation," CEPR Discussion Papers 4276, C.E.P.R. Discussion Papers.
  7. Kieron Meagher & Andrew Wait, 2008. "Who Decides about Change and Restructuring in Organizations?," CEPR Discussion Papers 587, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  8. Antonio Peyrache & Minyan Zhu, 2013. "The quality and efficiency of public service delivery in the UK and China," CEPA Working Papers Series WP052013, School of Economics, University of Queensland, Australia.
  9. Castanheira, Micael & Leppämäki, Mikko, 2003. "Optimal Information Management: Organizations versus Markets," CEPR Discussion Papers 4072, C.E.P.R. Discussion Papers.
  10. 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.
  11. Ruys, P.H.M., 2002. "A Managed Service Economy With an Equilibrium for Marketable Services," Discussion Paper 2002-1, Tilburg University, Center for Economic Research.

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