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Journal of Economic Interaction and Coordination

, Volume 3, Issue 2, pp 119–135 | Cite as

Organizations undertaking complex projects in uncertain environments

  • Jason Barr
  • Nobuyuki Hanaki
Regular Article

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.

Keywords

Environmental complexity Information processing Decision making Organizational structure 

JEL Classification

C63 L2 

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Copyright information

© Springer-Verlag 2007

Authors and Affiliations

  1. 1.Department of EconomicsRutgers UniversityNewarkUSA
  2. 2.Department of International Political Economy, Graduate School of Humanities and Social SciencesUniversity of TsukubaTsukuba, IbarakiJapan

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