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The decentralization of information processing in the presence of interactions

Vayanos, Dimitri (2003) The decentralization of information processing in the presence of interactions. Review of Economic Studies, 70 (3). pp. 667-695. ISSN 1467-937X

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Abstract

We propose a model of organizational decision making, in which information processing is decentralized. Our model incorporates two features of many actual organizations: aggregation entails a loss of useful information, and the decision problems of different agents interact. We assume that an organization forms a portfolio of risky assets, following a hierarchical procedure. Agents' decision rules and the organization's hierarchical structure are derived endogenously. Typically, in the optimal hierarchical structure, all agents have one subordinate, and returns to ability are at least as high at the bottom as at the top. However, these results can be reversed in the presence of returns to specialization.

Item Type: Article
Official URL: http://www.blackwellpublishing.com/journals/ROES
Additional Information: This is an electronic version of an Article published in the Review of economic studies 70 (3) pp. 667-695 © 2003 Blackwell Publishing. LSE has developed LSE Research Online so that users may access research output of the School. Copyright © and Moral Rights for the papers on this site are retained by the individual authors and/or other copyright owners. Users may download and/or print one copy of any article(s) in LSE Research Online to facilitate their private study or for non-commercial research. You may not engage in further distribution of the material or use it for any profit-making activities or any commercial gain. You may freely distribute the URL (http://eprints.lse.ac.uk) of the LSE Research Online website.
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Departments > Accounting and Finance
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 09 Nov 2005
URL: http://eprints.lse.ac.uk/452/

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