The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures

18 Pages Posted: 4 Dec 2004

See all articles by Winston T.H. Koh

Winston T.H. Koh

Singapore Management University - School of Social Sciences

Date Written: August 2004

Abstract

We present a general framework to study the project selection problem in an organization of fallible decision-makers. We show that when the organizational size and the majority rule for project acceptance are optimized simultaneously, the optimal quality of decision-making, as determined by the decision criterion, is invariant, and depends only on the expertise of decision-makers. This result clarifies that the circumstances under which the decision-making quality varies with the organizational structure are situations where the organizational size or majority rule is restricted from reaching the optimal level. Moreover, in contrast to earlier findings in the literature that the hierarchy and the polyarchy are sub-optimal structures, we show that when the size, structure and decision criterion are simultaneously optimized, the hierarchy and the polyarchy are in fact the only possible optimal organizational structures when decision-making costs are present.

Keywords: Organizational decision-making, structure, quality, hierarchy, polyarchy

JEL Classification: D81

Suggested Citation

Koh, Winston T.H., The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures (August 2004). Available at SSRN: https://ssrn.com/abstract=626341 or http://dx.doi.org/10.2139/ssrn.626341

Winston T.H. Koh (Contact Author)

Singapore Management University - School of Social Sciences ( email )

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+65 6822 0833 (Fax)

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