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Centralization vs. Decentralization in a Multi-Unit Organization: A Computational Model of a Retail Chain as a Multi-Agent Adaptive System

  • Myong-Hun Chang

    ()

    (Department of Economics, Cleveland State University, Cleveland, Ohio 44115)

  • Joseph E. Harrington

    ()

    (Department of Economics, The Johns Hopkins University, Baltimore, Maryland 21218)

A computational model of a retail chain is developed in which store managers continually search for better practices. Search takes place over a rugged landscape defined over the space of store practices. The main objective of this research is to determine how the amount of discretion given to store managers as to how they run their stores influences the rate of innovation at the store level. We find that greater decentralization enhances firm performance when stores' markets are sufficiently different, the horizon is sufficiently long, and markets are sufficiently stable.

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File URL: http://dx.doi.org/10.1287/mnsc.46.11.1427.12085
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 46 (2000)
Issue (Month): 11 (November)
Pages: 1427-1440

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Handle: RePEc:inm:ormnsc:v:46:y:2000:i:11:p:1427-1440
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  1. Levinthal, Daniel & March, James G., 1981. "A model of adaptive organizational search," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 307-333, December.
  2. Epple, D. & Argote, L. & Darr, E.D., 1995. "The Acquisition, Transfer and Depreciation of Knowledge in Service Organisations: Productivity in Franchises," GSIA Working Papers 1995-16, Carnegie Mellon University, Tepper School of Business.
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  5. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  6. 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.
  7. Krishnan S. Anand & Haim Mendelson, 1997. "Information and Organization for Horizontal Multimarket Coordination," Management Science, INFORMS, vol. 43(12), pages 1609-1627, December.
  8. Philippe Jehiel, 1999. "Information Aggregation and Communication in Organizations," Management Science, INFORMS, vol. 45(5), pages 659-669, May.
  9. Eric D. Darr & Linda Argote & Dennis Epple, 1995. "The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises," Management Science, INFORMS, vol. 41(11), pages 1750-1762, November.
  10. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
  11. Julio J. Rotemberg, 1999. "Process- Versus Function-Based Hierarchies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(4), pages 453-487, December.
  12. Cohen, Michael D., 1981. "The power of parallel thinking," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 285-306, December.
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