Working Paper: CEPR ID: DP4022
Authors: Timothy Van Zandt
Abstract: This Paper presents a model in which boundedly rational members of an administrative staff calculate resource allocations in real time. We consider a class of hierarchical procedures in which information about payoff functions flows up and is aggregated by a hierarchy, while allocations flow down and are disaggregated by the hierarchy with decentralized decision making. We assume that the payoff functions are quadratic and that the payoff parameters follow first-order autoregressive processes. We define a team statistical optimality condition that formalizes the notion of decentralized decision making. We derive a reduced form that can be used to address specific questions about organizational structure and returns to scale.
Keywords: bounded rationality; decentralization; hierarchies; realtime computation; resource allocation
JEL Codes: D23; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hierarchical structure (L22) | efficiency of resource allocation (D61) |
| Decentralized decision-making (D70) | timely and relevant resource allocations (G11) |
| Flow of information (D83) | coordination among divisions (M54) |
| Payoff function (G19) | decision-making process (D70) |