The Architecture of Economic Systems: Hierarchies and Polyarchies

American Economic Review, Vol. 76, No. 4, September 1986

Yale University, School of Organization & Management, Economics of Organization, Working Paper Series D, Working Paper No. 9

52 Pages Posted: 30 Jun 2012

See all articles by Raaj Kumar Sah

Raaj Kumar Sah

University of Chicago

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 1985

Abstract

We present some new ways of looking at economic systems. The aspect of human behavior which we emphasize is that individuals' judgments entail errors (they sometimes reject good projects and accept bad projects). The aspect of an economic system on which we focus is its architecture; that is, how the decision making units are organized together within a system, who gathers what information, and who communicates what with whom. The architecture of a system affects its performance not only because it influences the nature of errors which individuals make within the system, but also because it has a critical effect on the aggregation of individuals' errors. We analyze and compare the performance of two polar architectures, with decentralized (polyarchical) versus centralized (hierarchical) decision making authorities. Also, we discuss several extensions of our analysis.

Suggested Citation

Sah, Raaj Kumar and Stiglitz, Joseph E., The Architecture of Economic Systems: Hierarchies and Polyarchies (April 1, 1985). American Economic Review, Vol. 76, No. 4, September 1986; Yale University, School of Organization & Management, Economics of Organization, Working Paper Series D, Working Paper No. 9. Available at SSRN: https://ssrn.com/abstract=2096397

Raaj Kumar Sah (Contact Author)

University of Chicago ( email )

Chicago, IL 60637
United States
+1 773 288 1117 (Phone)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
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New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

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