Title

The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures

Publication Type

Journal Article

Publication Date

2005

Abstract

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 generally sub-optimal 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.

Discipline

Industrial Organization

Research Areas

Applied Microeconomics

Publication

Social Choice and Welfare

Volume

25

Issue

1

First Page

207

Last Page

220

ISSN

0176-1714

Identifier

10.1007/s00355-005-0055-1

Publisher

Springer Verlag

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1007/s00355-005-0055-1

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