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Review of Economic Design

, Volume 3, Issue 2, pp 149–157 | Cite as

Organizational design with a budget constraint

  • Hans Gersbach
  • Uwe Wehrspohn

Abstract.

In this paper we point out that the presence of the budget constraint substantially affects the relative performance of organizational decision rules. For instance, if there are only two types of projects to decide upon, the hierarchy always performs better than the polyarchy. The same result holds for any distribution of the quality of projects. We also illustrate that optimal mechanisms for variable evaluation costs involve stopping rules which look hierarchical, but avoid costly duplication as in hierarchies or polyarchies.

JEL classification: D23, L2 Key words: Organizational design, hierarchies and polyarchies, decision rules, organizational performance 

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Copyright information

© Springer-Verlag Berlin Heidelberg 1998

Authors and Affiliations

  • Hans Gersbach
    • 1
  • Uwe Wehrspohn
    • 1
  1. 1. Alfred Weber-Institut, Universität Heidelberg, Grabengasse 14, D-69117 Heidelberg, Germany DE

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