Publication Type
Journal Article
Publication Date
10-2005
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.
Keywords
Decision Criterion, Majority Rule, Organizational Size, Project Selection, Investment Environment
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
Citation
KOH, Winston T. H..
The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures. (2005). Social Choice and Welfare. 25, (1), 207-220.
Available at: https://ink.library.smu.edu.sg/soe_research/203
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1007/s00355-005-0055-1