The architecture and the configuration of information-processing organizations

We model a hierarchy consisting of possibly corrupted agents who process information, and consider the problem of designing the efficient hierarchy structure and configuring the agents who differ in their honesty. If the only role of agents is to report the information to their direct superior, a purely horizontal structure is efficient, but, if a superior can detect and correct the misreport from his subordinate, the efficient structure has the form in which only the least honest agent in any rank has subordinates. This concentrated structure may be dominated by a regular one if there are gains from specialyzation