The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures
AbstractWe present a general framework to study the project selection problem in an organization of fallible decision-makers. We show that when the organizational size and the majority rule for project acceptance are optimized simultaneously, the optimal quality of decision-making, as determined by the decision criterion, is invariant, and depends only on the expertise of decision-makers. This result clarifies that the circumstances under which the decision-making quality varies with the organizational structure are situations where the organizational size or majority rule is restricted from reaching the optimal level. Moreover, in contrast to earlier findings in the literature that the hierarchy and the polyarchy are suboptimal structures, we show that when the size, structure and decision criterion are simultaneously optimized, the hierarchy and the polyarchy are in fact the only possible optimal organizational structures when decision-making costs are present.
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Bibliographic InfoPaper provided by Singapore Management University, School of Economics in its series Working Papers with number 18-2004.
Length: 19 pages
Date of creation: Aug 2004
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Other versions of this item:
- Winston Koh, 2005. "The optimal design of fallible organizations: invariance of optimal decision criterion and uniqueness of hierarchy and polyarchy structures," Social Choice and Welfare, Springer, vol. 25(1), pages 207-220, October.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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- Ben-Yashar, Ruth & Nitzan, Shmuel, 1998. "Quality and structure of organizational decision-making," Journal of Economic Behavior & Organization, Elsevier, vol. 36(4), pages 521-534, September.
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- Raaj Kumar Sah, 1991.
"Fallibility in Human Organizations and Political Systems,"
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American Economic Association, vol. 5(2), pages 67-88, Spring.
- Sah, R.K., 1991. "Fallibility In Human Organizations And Political Systems," Papers 625, Yale - Economic Growth Center.
- Ruth Ben-Yashar & Jacob Paroush, 2001. "Optimal decision rules for fixed-size committees in polychotomous choice situations," Social Choice and Welfare, Springer, vol. 18(4), pages 737-746.
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