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The Firm as a Communication Network

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  • Patrick Bolton
  • Mathias Dewatripont

Abstract

This paper analyzes how organizations can minimize costs of processing and communicating information. Communication is costly because it takes time for an agent to absorb new information sent by others. Agents can reduce this time by specializing in the processing of particular types of information. When these returns to specialization outweigh costs of communication, it is efficient for several agents to collaborate within a firm. It is shown that efficient networks involve centralization, that individuals delegate tasks to subordinates only if they are overloaded, and that the number of transits to the top tends to be equalized across individual information items.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:qjecon:v:109:y:1994:i:4:p:809-839.
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    File URL: http://hdl.handle.net/10.2307/2118349
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    1. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    2. Alan J. Auerbach & Kevin A. Hassett & Stephen D. Oliner, 1994. "Reassessing the Social Returns to Equipment Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 789-802.
    3. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
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