Decentralization, aggregation, control loss and costs in a hierarchical model of the firm

Michael Keren*, David Levhari

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

35 Scopus citations

Abstract

We study the multi-divisional firm with the help of a model which links organizational structure and performance. We add to our previous model an ability to delegate decisions at the cost of control loss, and study its effects on both the structure and the average costs of the firm. Our technique involves the aggregation of observations and disaggregation of commands: the aggregation, while simplifying the calculations by superiors and saving time, introduces error into their decisions. The tradeoff between time and error is taken into account in the construction of the hierarchy.

Original languageEnglish
Pages (from-to)213-236
Number of pages24
JournalJournal of Economic Behavior and Organization
Volume11
Issue number2
DOIs
StatePublished - Mar 1989

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