Assembling Efficient Organizations?
Assembling Efficient Organizations?
This paper appeared in a Festschrift in honour of Kenneth Arrow in 1986 (Uncertainty, Information and Communication Essays in Honor of Kenneth J. Arrow, iii, eds W. P. Heller, R. M. Starr, and D. A. Starrett. Cambridge: Cambridge University Press). The ideas contained in it clearly flow from those in ’More measures for fixed factors’ (Ch. 21), although the techniques used to obtain the results are different. Gorman suggests that managers may buy and sell different firms with an eye towards efficient control within a large enterprise, and that this behaviour leads to an enterprise consisting of many different factories and subsidiaries chosen with this efficiency in mind. The manager of the enterprise wishes to be able to decentralize decision‐making without any loss of efficiency. This paper rationalizes this procedure––a particular type of two‐stage budgeting within profit‐maximizing firms.
Keywords: decentralization of decision‐making, decision‐making, efficiency, firms, large enterprises, organizations, profit‐maximization, two‐stage budgeting
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