IDEAS home Printed from https://ideas.repec.org/p/siu/wpaper/18-2004.html
   My bibliography  Save this paper

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

Author

Listed:
  • Winston T H Koh

    (School of Economics and Social Sciences, Singapore Management University)

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 suboptimal 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.

Suggested Citation

  • Winston T H Koh, 2004. "The Optimal Design of Fallible Organizations: Invariance of Optimal Decision Criterion and Uniqueness of Hierarchy and Polyarchy Structures," Working Papers 18-2004, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:18-2004
    as

    Download full text from publisher

    File URL: https://mercury.smu.edu.sg/rsrchpubupload/3229/Optimal_organization_Aug2004.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eddie Dekel & Michele Piccione, 2000. "Sequential Voting Procedures in Symmetric Binary Elections," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 34-55, February.
    2. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    3. Feddersen, Timothy & Pesendorfer, Wolfgang, 1998. "Convicting the Innocent: The Inferiority of Unanimous Jury Verdicts under Strategic Voting," American Political Science Review, Cambridge University Press, vol. 92(1), pages 23-35, March.
    4. Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-470, June.
    5. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    6. Austen-Smith, David & Banks, Jeffrey S., 1996. "Information Aggregation, Rationality, and the Condorcet Jury Theorem," American Political Science Review, Cambridge University Press, vol. 90(1), pages 34-45, March.
    7. Ben-Yashar, Ruth & Nitzan, Shmuel, 2001. "Investment Criteria in Single and Multi-member Economic Organizations," Public Choice, Springer, vol. 109(1-2), pages 1-13, October.
    8. Ben-Yashar, Ruth & Nitzan, Shmuel, 1998. "Quality and structure of organizational decision-making," Journal of Economic Behavior & Organization, Elsevier, vol. 36(4), pages 521-534, September.
    9. Raaj Kumar Sah, 1991. "Fallibility in Human Organizations and Political Systems," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 67-88, Spring.
    10. Koh, Winston T. H., 1994. "Making decisions in committees a human fallibility approach," Journal of Economic Behavior & Organization, Elsevier, vol. 23(2), pages 195-214, March.
    11. Ben-Yashar, Ruth C & Nitzan, Shmuel I, 1997. "The Optimal Decision Rule for Fixed-Size Committees in Dichotomous Choice Situations: The General Result," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 175-186, February.
    12. Koh, Winston T. H., 1992. "Human fallibility and sequential decision making : Hierarchy versus polyarchy," Journal of Economic Behavior & Organization, Elsevier, vol. 18(3), pages 317-345, August.
    13. Sah, R.K., 1990. "An Explicit Closed-Form Formula For Prof-Maximizing K-Ou- Of N Systems Subject To Two Kinds Of Failures," Papers 623, Yale - Economic Growth Center.
    14. Ruth Ben-Yashar & Jacob Paroush, 2001. "Optimal decision rules for fixed-size committees in polychotomous choice situations," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 18(4), pages 737-746.
    15. Nicola Persico, 2004. "Committee Design with Endogenous Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(1), pages 165-191.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ruth Ben-Yashar & Igal Milchtaich, 2003. "First and Second Best Voting Rules in Committees," Working Papers 2003-08, Bar-Ilan University, Department of Economics.
    2. Ruth Ben-Yashar, 2006. "Information is important to Condorcet jurors," Public Choice, Springer, vol. 127(3), pages 305-319, June.
    3. Ben-Yashar, Ruth & Khuller, Samir & Kraus, Sarit, 2001. "Optimal collective dichotomous choice under partial order constraints," Mathematical Social Sciences, Elsevier, vol. 41(3), pages 349-364, May.
    4. Li Hao & Wing Suen, 2009. "Viewpoint: Decision-making in committees," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 359-392, May.
    5. Hao Li & Sherwin Rosen & Wing Suen, 2001. "Conflicts and Common Interests in Committees," American Economic Review, American Economic Association, vol. 91(5), pages 1478-1497, December.
    6. Chifeng Dai, 2010. "Imperfect verification, appeals, and limited liability," Journal of Regulatory Economics, Springer, vol. 37(1), pages 23-41, February.
    7. Gerling, Kerstin & Gruner, Hans Peter & Kiel, Alexandra & Schulte, Elisabeth, 2005. "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, Elsevier, vol. 21(3), pages 563-597, September.
    8. Eyal Baharad & Ruth Ben-Yashar, 2009. "The robustness of the optimal weighted majority rule to probability distortion," Public Choice, Springer, vol. 139(1), pages 53-59, April.
    9. Eyal Baharad & Ruth Ben-Yashar, 2021. "Judgment Aggregation by a Boundedly Rational Decision-Maker," Group Decision and Negotiation, Springer, vol. 30(4), pages 903-914, August.
    10. Michael Christensen & Thorbjørn Knudsen, 2010. "Design of Decision-Making Organizations," Management Science, INFORMS, vol. 56(1), pages 71-89, January.
    11. Ruth Ben-Yashar & Winston Koh & Shmuel Nitzan, 2012. "Is specialization desirable in committee decision making?," Theory and Decision, Springer, vol. 72(3), pages 341-357, March.
    12. Ruth Ben‐Yashar & Miriam Krausz & Shmuel Nitzan, 2018. "Government loan guarantees and the credit decision‐making structure," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(2), pages 607-625, May.
    13. Min Zhu & Chang Liu & You-Gan Wang, 2017. "A comment on Koh’s “The optimal design of fallible organizations: invariance of optimal decision threshold and uniqueness of hierarchy and polyarchy structures”," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 48(2), pages 385-392, February.
    14. Ruth Ben-Yashar & Leif Danziger, 2015. "When is voting optimal?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 341-356, October.
    15. Ruth Ben-Yashar & Shmuel Nitzan, 2017. "Is diversity in capabilities desirable when adding decision makers?," Theory and Decision, Springer, vol. 82(3), pages 395-402, March.
    16. Raaj Kumar Sah, 1991. "Fallibility in Human Organizations and Political Systems," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 67-88, Spring.
    17. Ioannides, Yannis M., 2012. "Complexity and organizational architecture," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 193-202.
    18. Alexander Lundberg, 2020. "The importance of expertise in group decisions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 55(3), pages 495-521, October.
    19. Mie Augier & Thorbjørn Knudsen, 2012. "The Architecture and Management of Knowledge in Organizations," Chapters, in: Richard Arena & Agnès Festré & Nathalie Lazaric (ed.), Handbook of Knowledge and Economics, chapter 19, Edward Elgar Publishing.
    20. Ruth Ben-Yashar & Igal Milchtaich, 2002. "Which Voting Rules Elicit Informative Voting?," Working Papers 2002-13, Bar-Ilan University, Department of Economics.

    More about this item

    Keywords

    organizational decision-making; structure; quality; hierarchy; polyarchy;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:siu:wpaper:18-2004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: QL THor (email available below). General contact details of provider: https://edirc.repec.org/data/sesmusg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.