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Real-Time Hierarchical Resource Allocation with Quadratic Costs

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  • Van Zandt, Timothy

Abstract

This Paper presents a model in which boundedly rational members of an administrative staff calculate resource allocations in real time. We consider a class of hierarchical procedures in which information about payoff functions flows up and is aggregated by a hierarchy, while allocations flow down and are disaggregated by the hierarchy with decentralized decision making. We assume that the payoff functions are quadratic and that the payoff parameters follow first-order autoregressive processes. We define a team statistical optimality condition that formalizes the notion of decentralized decision making. We derive a reduced form that can be used to address specific questions about organizational structure and returns to scale.

Suggested Citation

  • Van Zandt, Timothy, 2003. "Real-Time Hierarchical Resource Allocation with Quadratic Costs," CEPR Discussion Papers 4022, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4022
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    References listed on IDEAS

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    1. 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.
    2. Friedman, Eric J & Oren, Shmuel S, 1995. "The Complexity of Resource Allocation and Price Mechanisms under Bounded Rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 225-250.
    3. Mount, Kenneth R & Reiter, Stanley, 1996. "A Lower Bound on Computational Complexity Given by Revelation Mechanisms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 237-266.
    4. Kenneth R. Mount & Stanley Reiter, 1996. "A lower bound on computational complexity given by revelation mechanisms (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 237-266.
    5. Timothy Van Zandt, 1997. "Real-Time Hierarchical Resource Allocation," Discussion Papers 1231, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Van Zandt, Timothy, 2004. "Balancedness of Real-Time Hierarchical Resource Allocation," CEPR Discussion Papers 4276, C.E.P.R. Discussion Papers.
    7. Mount, Kenneth R & Reiter, Stanley, 1996. "A Lower Bound on Computational Complexity Given by Revelation Mechanisms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 237-266.
    8. Kenneth R. Mount & Stanley Reiter, 1990. "A Model of Computing with Human Agents," Discussion Papers 890, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Stanley Reiter, 1995. "Coordination and the Structure of Firms," Discussion Papers 1121, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Timothy van Zandt, 1999. "Real-Time Decentralized Information Processing as a Model of Organizations with Boundedly Rational Agents," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 633-658.
    11. Timothy Van Zandt & Roy Radner, 1998. "Real-Time Decentralized Information Processing and Returns to Scale," Discussion Papers 1233, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. Kieron Meagher & Timothy Van Zandt, 1998. "Managerial costs for one-shot decentralized information processing," Review of Economic Design, Springer;Society for Economic Design, vol. 3(4), pages 329-345.
    13. repec:adr:anecst:y:1992:i:25-26:p:13 is not listed on IDEAS
    14. Timothy Van Zandt, 1998. "The scheduling and organization of periodic associative computation: Efficient networks," Review of Economic Design, Springer;Society for Economic Design, vol. 3(2), pages 93-127.
    15. Kenneth R. Mount & Stanley Reiter, 1994. "On Modeling Computing with Human Agents," Discussion Papers 1080, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    16. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-1146, September.
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    Citations

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    Cited by:

    1. Dimitri Vayanos, 2003. "The Decentralization of Information Processing in the Presence of Interactions," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 667-695.
    2. Vogel, Sebastian & Meyr, Herbert, 2015. "Decentral allocation planning in multi-stage customer hierarchies," European Journal of Operational Research, Elsevier, vol. 246(2), pages 462-470.
    3. Marschak, Thomas, 2006. "Organization Structure," MPRA Paper 81518, University Library of Munich, Germany.

    More about this item

    Keywords

    bounded rationality; decentralization; hierarchies; real-time computation; resource allocation;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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