A distinct feature of China’s privatization is that both its design and its implementation are highly decentralized and are administered by the local governments. Based on a survey of 3,000 firms in over 100 Chinese cities, this paper studies how city governments choose among various...

This paper analyses the impact of inequality on growth when technical progress is driven by innovations. It is assumed that consumers have hierarchic preferences. As a result inequality affects demand and therefore the incentive to innovate. Whether more inequality is harmful or beneficial for...

This Paper presents a model in which boundedly rational members of an administrative staff calculate resource allocations in real time. We consider a class of hierarchical procedures in which information about payoff functions flows up and is aggregated by a hierarchy, while allocations flow...

I develop a model of (individually rational) collective reality denial in groups, organizations and markets. Whether participants' tendencies toward wishful thinking reinforce or dampen each other is shown to hinge on a simple and novel mechanism. When an agent can expect to benefit from other's...

We examine how a firm's changing environment and the information constraints of its managers interact as determinants of the size of the firm's administration. Following the recent decentralised information processing literature, we assume that it takes individual managers time to process...

A group of P identical managers has to make a choice between N alternatives. They benefit from reaching the decision quickly. In order to learn which is the best option, the alternatives have to be compared. A manager is able to identify the better one of two alternatives only with a certain...

We take the hierarchical resource allocation model in Van Zandt (2003a) and derive a simpler, reduced-form model of balanced hierarchies. This model uses continuous approximations; we derive bounds on the errors due to these approximations. We then give results that indicate that optimal...

Labour productivity in the US has recently grown more strongly than in most European countries. It is often argued that the American productivity increase is due to the widespread introduction of new information and communication technologies (ICT). But why have the same technologies not...

This paper compares centralized and decentralized coordination when managers are privately informed and communicate strategically. We consider a multi-divisional organization in which decisions must be responsive to local conditions but also coordinated with each other. Information about local...

Companion papers develop a model of real-time hierarchical computation of resource allocations by boundedly rational members of an administrative staff. The nodes of a hierarchy are multi-person decision-making units offices. The current Paper uses a reduced form to address specific questions...