Industrial Organization Commons^™

The Optimal Design Of Fallible Organizations: Invariance Of Optimal Decision Criterion And Uniqueness Of Hierarchy And Polyarchy Structures, Winston T. H. Koh

Research Collection School Of Economics

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 …