Econometrica: Jul 1959, Volume 27, Issue 3
Centralization and Decentralization in Economic Organizations
Thomas MarschakThe preference for decentralization in the classic debates about planned production in a socialist economy has appeared more recently in the context of an organization that maximizes, subject to constraints, a scalar-valued function of its decisions. This article seeks a basis for the preference. A class of schemes for organizational decision-making is defined, and decentralized (in the classic sense), centralized, and unrestricted subclasses are considered. Criteria for ranking the schemes are obtained and applied in a simple illustrative organization. It is found that a general preference for one of the subclasses cannot be defended without further restricting the model substantially.
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