Chapter 27 Organization design

This chapter discusses an assortment of recent economic studies in the same way: as steps toward characterizing those organization designs that do well, according to some measure of gross performance, with the informational and administrative resources they require. The steps turn out to be diverse and modest, but the problem is difficult. Piecing the assorted contributions together, one is still far indeed from a unified theory of efficient organization design. The main stumbling block remains the modeling of technology and cost. Some elements of cost have been studied intensively and even elegantly. The chapter examines the Shannon theory in connection with transmission, and the theory of finite-state machines in connection with the assignment of output/state pairs to input/state pairs in one-step designs with memory. Techniques have been developed for the study of a design's gross performance, for example, the computation of expected payoff for a given team information structure, and these remain useful in efficiency studies when good cost models become available. The theory, even in its present form, has already been useful in revealing how difficult it is (1) to define certain widely current terms sharply and agreeably to most usages and (2) to verify certain widely held conjectures.