Econometrica: Jul, 1959, Volume 27, Issue 3

Centralization and Decentralization in Economic Organizations

https://doi.org/0012-9682(195907)27:3<399:CADIEO>2.0.CO;2-2
p. 399-430

Thomas Marschak

The preference for decentralization in the classic debates about planned production in a socialist economy has appeared more recently in the context of an organization that maximizes, subject to constraints, a scalar-valued function of its decisions. This article seeks a basis for the preference. A class of schemes for organizational decision-making is defined, and decentralized (in the classic sense), centralized, and unrestricted subclasses are considered. Criteria for ranking the schemes are obtained and applied in a simple illustrative organization. It is found that a general preference for one of the subclasses cannot be defended without further restricting the model substantially.