Abstract
Recent evidence suggests that firms’ environments are becoming more complex and uncertain. This paper investigates the relationship between the complexity of a firm’s activities, environmental uncertainty and organizational structure. We assume agents are arranged hierarchically, but decisions can be made at different levels. We model a firm’s activity set as a modified NK landscape. Via simulations, we find that centralized decision making generates a higher payoff in more complex and uncertain environments, and that a flatter structure is better for the organization with centralized decision making, provided the cost of information processing is low enough.
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Financial Support from Zengin Foundation for Studies on Economics and Finance is gratefully acknowledged.
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Barr, J., Hanaki, N. Organizations undertaking complex projects in uncertain environments. J Econ Interact Coord 3, 119–135 (2008). https://doi.org/10.1007/s11403-007-0025-z
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DOI: https://doi.org/10.1007/s11403-007-0025-z