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Designing the Efficient Information-Processing Organization

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  • Jun Tackseung

    () (Kyung Hee University)

  • Kim Jeong-Yoo

    () (Kyung Hee University)

Abstract

We model a hierarchy consisting of a fixed number of heterogeneous agents, each of which reports (possibly distorted) information to its direct superior who can detect and correct the misreport with some probability. Two problems are simultaneously considered: designing the efficient hierarchy structure and configuring the agents who are heterogeneous in their trustworthiness. We develop the Unimprovability Principle, which is an analogy of Bellman Principle. By applying the principle, we show that efficiency requires only the least reliable agent in any rank to have subordinates.

Suggested Citation

  • Jun Tackseung & Kim Jeong-Yoo, 2010. "Designing the Efficient Information-Processing Organization," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-29, October.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:45
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    References listed on IDEAS

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    1. Mathias Dewatripont & Patrick Bolton, 1994. "The firm as a communication network," ULB Institutional Repository 2013/9595, ULB -- Universite Libre de Bruxelles.
    2. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    3. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    4. Patrick Bolton & Mathias Dewatripont, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 809-839.
    5. Geanakoplos, John & Milgrom, Paul, 1991. "A theory of hierarchies based on limited managerial attention," Journal of the Japanese and International Economies, Elsevier, vol. 5(3), pages 205-225, September.
    6. Hao Li, 1999. "Hierarchies and information-processing organizations," Review of Economic Design, Springer;Society for Economic Design, vol. 4(2), pages 101-126.
    7. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-1146, September.
    8. Visser, B., 1998. "Binary Decision Structures and the Required Detail of Information," Economics Working Papers eco98/1, European University Institute.
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