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The Firm as a Communication Network

The Firm as a Communication Network Abstract This paper analyzes how organizations can minimize costs of processing and communicating information. Communication is costly because it takes time for an agent to absorb new information sent by others. Agents can reduce this time by specializing in the processing of particular types of information. When these returns to specialization outweigh costs of communication, it is efficient for several agents to collaborate within a firm. It is shown that efficient networks involve centralization, that individuals delegate tasks to subordinates only if they are overloaded, and that the number of transits to the top tends to be equalized across individual information items. * We are grateful to Masahiko Aoki, Drew Fudenberg, Gérard Genotte, Bengt Holmstrom, Nobuhiro Kiyotaki, Eric Maskin, Gérard Roland, Jean Tirole, and especially Marjorie Gassner, Timothy Van Zandt, and an anonymous referee for their suggestions. We have also benefited from comments by seminar participants at Tilburg University, University of Bruxelles; University of Leuven; University of Louvain; Stanford University; University of California, Davis; Harvard University; the Massachusetts Institute of Technology; the University of Chicago; University of Illinois, Chicago; Purdue University; University of Barcelona; Delta, Toulouse University, Oxford University; London School of Economics; and the University of Edinburgh. Part of this work was done at Studienzentrum Gerzensee. We wish to thank the “Pôle d'Attraction Interuniversitaire” program of the Belgian Government which has supported this work under grant 26. This content is only available as a PDF. © 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Quarterly Journal of Economics Oxford University Press

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Publisher
Oxford University Press
Copyright
© 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
ISSN
0033-5533
eISSN
1531-4650
DOI
10.2307/2118349
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper analyzes how organizations can minimize costs of processing and communicating information. Communication is costly because it takes time for an agent to absorb new information sent by others. Agents can reduce this time by specializing in the processing of particular types of information. When these returns to specialization outweigh costs of communication, it is efficient for several agents to collaborate within a firm. It is shown that efficient networks involve centralization, that individuals delegate tasks to subordinates only if they are overloaded, and that the number of transits to the top tends to be equalized across individual information items. * We are grateful to Masahiko Aoki, Drew Fudenberg, Gérard Genotte, Bengt Holmstrom, Nobuhiro Kiyotaki, Eric Maskin, Gérard Roland, Jean Tirole, and especially Marjorie Gassner, Timothy Van Zandt, and an anonymous referee for their suggestions. We have also benefited from comments by seminar participants at Tilburg University, University of Bruxelles; University of Leuven; University of Louvain; Stanford University; University of California, Davis; Harvard University; the Massachusetts Institute of Technology; the University of Chicago; University of Illinois, Chicago; Purdue University; University of Barcelona; Delta, Toulouse University, Oxford University; London School of Economics; and the University of Edinburgh. Part of this work was done at Studienzentrum Gerzensee. We wish to thank the “Pôle d'Attraction Interuniversitaire” program of the Belgian Government which has supported this work under grant 26. This content is only available as a PDF. © 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Journal

The Quarterly Journal of EconomicsOxford University Press

Published: Nov 1, 1994

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