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Information Aggregation and Communication in Organizations

  • Philippe Jehiel

    (C.E.R.A.S.-E.N.P.C, 28 rue des Saints-Pères, 75007 Paris, France and University College London)

Operating units must communicate their private information regarding decisions to be taken in organizations. This paper characterizes the optimal communication structures assuming that (i) a decision maker is fired whenever he makes a decision that proves wrong ex post relative to the status quo; and (ii) direct communication in a group of kunits may result in the loss of messages with a probability that solely depends on the group size. Several levels of partitioning with direct communication taking place in each group are required. It is shown that there exists a group size that allows communication technology to be exploited optimally: The optimal communication structure is such that it is essentially composed of groups of this size only at every level of partitioning.

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File URL: http://dx.doi.org/10.1287/mnsc.45.5.659
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 45 (1999)
Issue (Month): 5 (May)
Pages: 659-669

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Handle: RePEc:inm:ormnsc:v:45:y:1999:i:5:p:659-669
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  1. Jensen, M.C. & Murphy, K.J., 1988. "Performance Pay And Top Management Incentives," Papers 88-04, Rochester, Business - Managerial Economics Research Center.
  2. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
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  9. Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-46, June.
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  13. Mathias Dewatripont & Patrick Bolton, 1996. "The firm as a communication network," ULB Institutional Repository 2013/9597, ULB -- Universite Libre de Bruxelles.
  14. Michael Keren & David Levhari, 1979. "The Optimum Span of Control in a Pure Hierarchy," Management Science, INFORMS, vol. 25(11), pages 1162-1172, November.
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  16. Jacques Cremer, 1980. "A Partial Theory of the Optimal Organization of a Bureaucracy," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 683-693, Autumn.
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