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Organizational design with a budget constraint

  • Hans Gersbach

    (Alfred Weber-Institut, Universit√Ąt Heidelberg, Grabengasse 14, D-69117 Heidelberg, Germany)

  • Uwe Wehrspohn

    (Alfred Weber-Institut, Universit√Ąt Heidelberg, Grabengasse 14, D-69117 Heidelberg, Germany)

In this paper we point out that the presence of the budget constraint substantially affects the relative performance of organizational decision rules. For instance, if there are only two types of projects to decide upon, the hierarchy always performs better than the polyarchy. The same result holds for any distribution of the quality of projects. We also illustrate that optimal mechanisms for variable evaluation costs involve stopping rules which look hierarchical, but avoid costly duplication as in hierarchies or polyarchies.

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Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 3 (1998)
Issue (Month): 2 ()
Pages: 149-157

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Handle: RePEc:spr:reecde:v:3:y:1998:i:2:p:149-157
Note: Received: 5 November 1995 / Accepted: 18 September 1997
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