This is a model of a pure hierarchy which oversees a given number of productive units. Its aim is to minimize costs, which are the sum of wage costs and costs caused by delays in decision making. The advantage of the model is that it permits the calculation of an optimum formal structure of the...

Do costs of coordination limit the size of firms? Do they lead to rising average costs at high output levels? A simple model of a firm which employs production and administrative labor, and where output is declining in coordination time by the latter, answers this question in two steps. First we...