Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/221589
Authors: 
Zandt, Timothy Van
Radner, Roy
Year of Publication: 
1998
Series/Report no.: 
Discussion Paper No. 1233
Abstract: 
We use a model of real-time decentralized information processing to understand how constraints on human information processing affect the returns to scale of organizations. We identify three informational (dis)economies of scale: diversification of heterogeneous risks (positive), sharing of information and of costs (positive), and crowding out of recent information due to information processing delay (negative). Because decision rules are endogenous, delay does not inexorably lead to decreasing returns to scale. However, returns are more likely to be decreasing when computation constraints, rather than sampling costs, limit the information upon which decisions are conditioned. The results illustrate how information processing constraints together with the requirement of informaitonal integration cause a breakdown of the replication arguments that have been used to establish nondecreasing technological returns to scale.
Subjects: 
returns to scale
real-time computation
decentralized information processing
organizations
bounded rationality
JEL: 
D83
D23
Document Type: 
Working Paper

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