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Complexity and Organizational Architecture

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  • Yannis M. Ioannides

Abstract

This paper revisits the literature on modelling organizations by means of networks of agents. Individual agents are engaged in screening projects, and architectural features of organizations, that is how each agent’s decision combines with those of others, a®ect the organization’s screening performance. It emphasizes how an organization of several agents may be improve upon individual performance by a suitable arrangement of the flow of decisions. The paper is motivated, in part, by a theorem due to Von Neumann, Moore and Shannon on how to build reliable networks using unreliable components and extends previous contributions by Sah and Stiglitz by recasting their original model in standard firm-theoretic terms and endogenizing its features. For an organization’s screening performance to improve over those of an individual’s, it must be sigmoid in individual performance, as measured by the probability that a good (bad) project be accepted (rejected). This is indeed the case for organizations with mixed Sah-stiglitz architectures, such as hierarchies made up of components that are polyarchies, and polyarchies made up of components that are hierarchies, give rise to such functions. This property is in turn critical for determining of the optimal number of levels of a hierarchy, and for endogenizing individual screening performance. The models are extended to allow for individuals’ own screening to be influenced from the opinions of superiors and subordinates. The paper examines the implications of such interactions for the limits to organizational performance.government to influence the real value of assets using fiscal and monetary policy.

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Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0313.

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Date of creation: 2003
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Handle: RePEc:tuf:tuftec:0313

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Keywords: organizations; architecture; complexity; composition;

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  1. Luigi Marengo & Giovanni Dosi & Paolo Legrenzi & Corrado Pasquali, 1999. "The structure of problem-solving knowledge and the structure of organisations," LEM Papers Series 1999/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Zwiebel, Jeffrey H. & Vayanos, Dimitri & DeMarzo, Peter M., 2001. "Persuasion Bias, Social Influence, and Uni-Dimensional Opinions," Research Papers 1719, Stanford University, Graduate School of Business.
  3. Raaj Kumar Sah & Joseph E. Stiglitz, 1984. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
  4. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc.
  5. Guido Fioretti & Bauke Visser, 2004. "A Cognitive Approach to Organizational Complexity," Tinbergen Institute Discussion Papers 04-033/1, Tinbergen Institute.
  6. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
  7. Jan W. Rivkin, 2000. "Imitation of Complex Strategies," Management Science, INFORMS, vol. 46(6), pages 824-844, June.
  8. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
  9. Yannis M. Ioannides, 2004. "Topologies Of Social Interactions," Econometric Society 2004 North American Winter Meetings 287, Econometric Society.
  10. Mount,Kenneth R. & Reiter,Stanley, 2002. "Computation and Complexity in Economic Behavior and Organization," Cambridge Books, Cambridge University Press, number 9780521800563, April.
  11. Koh Winston T. H., 1992. "Variable evaluation costs and the design of fallible hierarchies and polyarchies," Economics Letters, Elsevier, vol. 38(3), pages 313-318, March.
  12. Ioannides, Yannis M., 1987. "On the architecture of complex organizations," Economics Letters, Elsevier, vol. 25(3), pages 201-206.
  13. Prat, Andrea, 2002. "Should a team be homogeneous?," European Economic Review, Elsevier, vol. 46(7), pages 1187-1207, July.
  14. Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-70, June.
  15. B. Visser, 2002. "Complexity, Robustness, and Performance," Tinbergen Institute Discussion Papers 02-048/1, Tinbergen Institute.
  16. Gehrig, Thomas & Régibeau, Pierre & Rockett, Katharine, 1998. "Project Evaluation and Organizational Form," CEPR Discussion Papers 1888, C.E.P.R. Discussion Papers.
  17. Visser, Bauke, 2000. "Organizational communication structure and performance," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 231-252, June.
  18. Szentes, Balazs & Koriyama, Yukio, 2009. "A resurrection of the Condorcet Jury Theorem," Theoretical Economics, Econometric Society, vol. 4(2), June.
  19. Raaj Kumar Sah, 1991. "Fallibility in Human Organizations and Political Systems," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 67-88, Spring.
  20. Sah, Raaj Kumar & Stiglitz, Joseph E, 1985. "Human Fallibility and Economic Organization," American Economic Review, American Economic Association, vol. 75(2), pages 292-97, May.
  21. Stanley Reiter, 1995. "Coordination and the Structure of Firms," Discussion Papers 1121, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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