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Project evaluation and organizational form

Gehrig, T and Régibeau, P and Rockett, K (2000) 'Project evaluation and organizational form.' Review of Economic Design, 5 (2). pp. 177-199. ISSN 1434-4742

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In situations of imperfect testing and communication, as suggested by Sah and Stiglitz (AER, 1986), organizational forms can be identified with different rules of aggregating evaluations of individual screening units. In this paper, we discuss the relative merits of polyarchical organizations versus hierarchical organizations in evaluating cost-reducing R&D projects when individual units' decision thresholds are fully endogenous. Contrary to the results of Sah and Stiglitz, we find that the relative merit of an organizational form depends on the curvature of the screening functions of the individual evaluation units. We find that for certain parameters organizations would want to implement asymmetric decision rules across screening units. This allows us to derive sufficient conditions for a polyarchy to dominate a hierarchy. We also find conditions for which the cost curves associated with the two organizational forms cross each other. In this case the optimal organizational form will depend on product market conditions and on the 'lumpiness' of cost-reducing R&D.

Item Type: Article
Uncontrolled Keywords: Organisations; screening; information aggregation; hierarchies; polyarchies
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 12 Jul 2012 11:32
Last Modified: 06 Jan 2022 13:32

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