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Firm Structure, Search and Environmental Complexity

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  • Jason Barr

    ()

  • Nobuyuki Hanaki

    ()

Abstract

This paper investigates the relationship between environmental complexity and firm organization. We ask: Given the complexity of the environment, which organizational structure and level of decision making authority optimizes performance of a firm? We assume the information processing organization is arranged hierarchically, but that decisions can be made at different levels, and thus centralization directly relates to the quantity of information used in making a decision. We model the external environment as a modified NK landscape. Via simulations, we explore which type of organizational structure and level of decision making maximizes firm profits, given the complexity of the environment.

Suggested Citation

  • Jason Barr & Nobuyuki Hanaki, 2005. "Firm Structure, Search and Environmental Complexity," Working Papers Rutgers University, Newark 2005-007, Department of Economics, Rutgers University, Newark.
  • Handle: RePEc:run:wpaper:2005-007
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    File URL: http://andromeda.rutgers.edu/~econnwk/workingpapers/2005-007.pdf
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    References listed on IDEAS

    as
    1. Langlois, Richard N., 2002. "Modularity in technology and organization," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 19-37, September.
    2. Myong-Hun Chang & Joseph E. Harrington, 2000. "Centralization vs. Decentralization in a Multi-Unit Organization: A Computational Model of a Retail Chain as a Multi-Agent Adaptive System," Management Science, INFORMS, vol. 46(11), pages 1427-1440, November.
    3. Barr, Jason & Saraceno, Francesco, 2002. "A computational theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 345-361, November.
    4. Raghuram G. Rajan & Julie Wulf, 2006. "The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 759-773, November.
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    7. Auerswald, Philip & Kauffman, Stuart & Lobo, Jose & Shell, Karl, 2000. "The production recipes approach to modeling technological innovation: An application to learning by doing," Journal of Economic Dynamics and Control, Elsevier, vol. 24(3), pages 389-450, March.
    8. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March.
    9. Myong-Hun Chang & Joseph E. Harrington, Jr, 2003. "Multimarket Competition, Consumer Search, and the Organizational Structure of Multiunit Firms," Management Science, INFORMS, vol. 49(4), pages 541-552, April.
    10. Kauffman, Stuart & Lobo, Jose & Macready, William G., 2000. "Optimal search on a technology landscape," Journal of Economic Behavior & Organization, Elsevier, vol. 43(2), pages 141-166, October.
    11. Myong-Hun Chang & Joseph E Harrington, 2000. "Organization of Innovation in a Multi-Unit Firm: Coordinating Adaptive Search on Multiple Rugged Landscapes," Economics Working Paper Archive 442, The Johns Hopkins University,Department of Economics.
    12. Sadao Sakakibara & Barbara B. Flynn & Roger G. Schroeder & William T. Morris, 1997. "The Impact of Just-in-Time Manufacturing and Its Infrastructure on Manufacturing Performance," Management Science, INFORMS, vol. 43(9), pages 1246-1257, September.
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    More about this item

    Keywords

    Information Processing; Organizational Structure; Rugged Landscapes;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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