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Centralization vs. Decentralization in a Multi-Unit Organization: A Computational Model of a Retail Chain as a Multi-Agent Adaptive System

Author Info

Listed author(s):
  • Myong-Hun Chang
  • Joseph E. Harrington Jr.

Abstract

A computational model of a retail chain is developed in which store managers continually search for better practices. Search takes place over a rugged landscape defined over the space of store practices. The main objective of this research is to determine how the amount of discretion given to store managers, as to how they run their stores, influences the rate of innovation at the store level. We find that greater decentralization enhances firm performance when stores' markets are sufficiently different, the horizon is sufficiently long, and market are sufficiently stable.

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Paper provided by Santa Fe Institute in its series Working Papers with number 00-02-010.

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Date of creation: Feb 2000
Handle: RePEc:wop:safiwp:00-02-010
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Web page: http://www.santafe.edu/sfi/publications/working-papers.html

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Keywords: Decentralization; organization; innovation.;

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  1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  2. 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 716-727, September.
  3. Julio J. Rotemberg, 1999. "Process- Versus Function-Based Hierarchies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(4), pages 453-487, December.
  4. Eric D. Darr & Linda Argote & Dennis Epple, 1995. "The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises," Management Science, INFORMS, vol. 41(11), pages 1750-1762, November.
  5. Barrie R. Nault, 1998. "Information Technology and Organization Design: Locating Decisions and Information," Management Science, INFORMS, vol. 44(10), pages 1321-1335, October.
  6. Cohen, Michael D., 1981. "The power of parallel thinking," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 285-306, December.
  7. Krishnan S. Anand & Haim Mendelson, 1997. "Information and Organization for Horizontal Multimarket Coordination," Management Science, INFORMS, vol. 43(12), pages 1609-1627, December.
  8. repec:bla:joares:v:33:y:1995:i:2:p:205-229 is not listed on IDEAS
  9. Philippe Jehiel, 1999. "Information Aggregation and Communication in Organizations," Management Science, INFORMS, vol. 45(5), pages 659-669, May.
  10. Levinthal, Daniel & March, James G., 1981. "A model of adaptive organizational search," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 307-333, December.
  11. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-1146, September.
  12. Helmy H. Baligh & Richard M. Burton & Børge Obel, 1996. "Organizational Consultant: Creating a Useable Theory for Organizational Design," Management Science, INFORMS, vol. 42(12), pages 1648-1662, December.
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Cited by:

  1. Chang, Myong-Hun & Harrington, Joseph Jr., 2006. "Agent-Based Models of Organizations," Handbook of Computational Economics,in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 26, pages 1273-1337 Elsevier.
  2. Desmarchelier, Benoît & Djellal, Faridah & Gallouj, Faïz, 2013. "Environmental policies and eco-innovations by service firms: An agent-based model," Technological Forecasting and Social Change, Elsevier, vol. 80(7), pages 1395-1408.
  3. 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.
  4. Jan W. Rivkin & Nicolaj Siggelkow, 2003. "Balancing Search and Stability: Interdependencies Among Elements of Organizational Design," Management Science, INFORMS, vol. 49(3), pages 290-311, March.
  5. Jason Barr & Nobuyuki Hanaki, 2005. "Firm Structure, Search and Environmental Complexity," Working Papers Rutgers University, Newark 2005-007, Department of Economics, Rutgers University, Newark.
  6. Chowdhury, Sanjib, 2011. "The moderating effects of customer driven complexity on the structure and growth relationship in young firms," Journal of Business Venturing, Elsevier, vol. 26(3), pages 306-320, May.
  7. Giannoccaro, Ilaria, 2011. "Assessing the influence of the organization in the supply chain management using NK simulation," International Journal of Production Economics, Elsevier, vol. 131(1), pages 263-272, May.
  8. Lichtenthaler, Ulrich, 2010. "Organizing for external technology exploitation in diversified firms," Journal of Business Research, Elsevier, vol. 63(11), pages 1245-1253, November.
  9. He, Zhou & Wang, Shouyang & Cheng, T.C.E., 2013. "Competition and evolution in multi-product supply chains: An agent-based retailer model," International Journal of Production Economics, Elsevier, vol. 146(1), pages 325-336.
  10. Rezapour, Shabnam & Allen, Janet K. & Mistree, Farrokh, 2016. "Reliable product-service supply chains for repairable products," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 95(C), pages 299-321.
  11. Dennis Campbell & Frances Frei, 2011. "Market Heterogeneity and Local Capacity Decisions in Services," Manufacturing & Service Operations Management, INFORMS, vol. 13(1), pages 2-19, April.
  12. Kawai, Norifumi & Strange, Roger, 2014. "Subsidiary autonomy and performance in Japanese multinationals in Europe," International Business Review, Elsevier, vol. 23(3), pages 504-515.

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