Coordination in Centralized and Decentralized Systems

Abstract

We study a simple coordination problem to understand the difference between centralized and decentralized economic systems. The decentralized system is more robust than the centralized system to communication errors. But the centralized system takes less time than the decentralized system to create coordination among constituent parts. Decentralization is preferable when there is little urgency, when there is need to prevent system-collapse, and when the constituent parts are more likely to make communication errors.

Keywords: Coordination; Information; Communication; Errors; Organization; Centralization; Decentralization; Markets; Firms; Fragility; Robustness; Time

JEL Classification: D21, D22, L11, L22, P10