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Firm Structure, Search and Environmental Complexity

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  • Nobuyuki Hanaki
  • Jason Barr

Abstract

In this paper we explore the information processing problem of the firm by modeling the firm as type of network, which is comprised of two kinds of agents, 'searchers' and 'managers.' The searchers explore the external environment and report the information to the managers. We explore the role of centralization/decentralization in organizational structure to see how it affects firm performance. Centralization is defined in terms of the level at which decisions are made. We assume the information processing organization is arranged hierarchically, but that decisions can be made at different levels, and thus centralization directly relates to the quantity of information used in making a decision. We model the external environment as an NK landscape. Via simulations, we explore which type of organizational structure and level of decision making maximizes firm profits, given the complexity of the environment

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 222.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:222

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Keywords: Organizational Structure; Decentralization; NK Landscape; Firm Search;

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  1. Myong-Hun Chang & Joseph E. Harrington Jr., 2000. "Centralization vs. Decentralization in a Multi-Unit Organization: A Computational Model of a Retail Chain as a Multi-Agent Adaptive System," Working Papers 00-02-010, Santa Fe Institute.
  2. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  3. Barr, Jason & Saraceno, Francesco, 2002. "A computational theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 345-361, November.
  4. Myong-Hun Chang & Joseph E Harrington, 2000. "Organization of Innovation in a Multi-Unit Firm: Coordinating Adaptive Search on Multiple Rugged Landscapes," Economics Working Paper Archive 442, The Johns Hopkins University,Department of Economics.
  5. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March.
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  8. Kauffman, Stuart & Lobo, Jose & Macready, William G., 2000. "Optimal search on a technology landscape," Journal of Economic Behavior & Organization, Elsevier, vol. 43(2), pages 141-166, October.
  9. Raghuram Rajan & Julie Wulf, 2003. "The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies," NBER Working Papers 9633, National Bureau of Economic Research, Inc.
  10. Langlois, Richard N., 2002. "Modularity in technology and organization," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 19-37, September.
  11. Myong-Hun Chang & Joseph E. Harrington, Jr, 2003. "Multimarket Competition, Consumer Search, and the Organizational Structure of Multiunit Firms," Management Science, INFORMS, vol. 49(4), pages 541-552, April.
  12. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
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