The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures
We present a general framework to study the project selection problem in an organization of fallible decision-makers. We show that when the organizational size and the majority rule for project acceptance are optimized simultaneously, the optimal quality of decision-making, as determined by the decision criterion, is invariant, and depends only on the expertise of decision-makers. This result clarifies that the circumstances under which the decision-making quality varies with the organizational structure are situations where the organizational size or majority rule is restricted from reaching the optimal level. Moreover, in contrast to earlier findings in the literature that the hierarchy and the polyarchy are suboptimal structures, we show that when the size, structure and decision criterion are simultaneously optimized, the hierarchy and the polyarchy are in fact the only possible optimal organizational structures when decision-making costs are present.
|Date of creation:||Aug 2004|
|Date of revision:|
|Publication status:||Published in SMU Economics and Statistics Working Paper Series|
|Contact details of provider:|| Postal: 90 Stamford Road, Singapore 178903|
Phone: 65-6828 0832
Fax: 65-6828 0833
Web page: http://www.economics.smu.edu.sg/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul R. Milgrom, 1981.
"Good News and Bad News: Representation Theorems and Applications,"
Bell Journal of Economics,
The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
- Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Dekel, E. & Piccione, M., 1998.
"On the equivalence of simulteneous and sequential binary elections,"
Discussion Paper Series In Economics And Econometrics
9801, Economics Division, School of Social Sciences, University of Southampton.
- Eddie Dekel & Michele Piccione, 1997. "On the Equivalence of Simultaneous and Sequential Binary Elections," Discussion Papers 1206, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Eddie Dekel & Michele Piccione, 2000.
"Sequential Voting Procedures in Symmetric Binary Elections,"
Journal of Political Economy,
University of Chicago Press, vol. 108(1), pages 34-55, February.
- Dekel, E. & Piccione, M., 1999. "Sequential Voting Procedures in Symmetric Binary Elections," Papers 3-99, Tel Aviv.
- Ruth Ben-Yashar & Jacob Paroush, 2001. "Optimal decision rules for fixed-size committees in polychotomous choice situations," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 18(4), pages 737-746.
- Koh, Winston T. H., 1994. "Making decisions in committees a human fallibility approach," Journal of Economic Behavior & Organization, Elsevier, vol. 23(2), pages 195-214, March.
- Sah, Raaj Kumar & Stiglitz, Joseph E, 1986.
"The Architecture of Economic Systems: Hierarchies and Polyarchies,"
American Economic Review,
American Economic Association, vol. 76(4), pages 716-27, September.
- 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.
- Ben-Yashar, Ruth & Nitzan, Shmuel, 1998. "Quality and structure of organizational decision-making," Journal of Economic Behavior & Organization, Elsevier, vol. 36(4), pages 521-534, September.
- Raaj Kumar Sah, 1991.
"Fallibility in Human Organizations and Political Systems,"
Journal of Economic Perspectives,
American Economic Association, vol. 5(2), pages 67-88, Spring.
- Sah, R.K., 1991. "Fallibility In Human Organizations And Political Systems," Papers 625, Yale - Economic Growth Center.
- Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-70, June.
- Nicola Persico, 2004. "Committee Design with Endogenous Information," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 165-191.
When requesting a correction, please mention this item's handle: RePEc:siu:wpaper:18-2004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (QL THor)
If references are entirely missing, you can add them using this form.