An Efficient Frontier in Organization Design

Abstract:     
This paper presents a framework to analyze a broad range of decision-making organizational forms that lie between the hierarchy and the polyarchy, by modeling how the structuring of decisions among multiple fallible agents affects the quality of the decisions made by the organization. The method predicts Type I and II errors, time to make a decision, proportion of good projects approved, and expected profits for each organizational form. The model has far reaching implications, as all organizations have to decide which organizational form they will adopt. One important result is that not all organizations are efficient; some organizational forms should always be preferred over others. Some implications of the model are discussed in light of the organization design and the innovation literature.

Keywords: Organization Design, Contingency Theory, Type I Error, Type II Error, Innovation, Speed

JEL Classifications: D81, D23, D71, D73

Working Paper Series