Econometrica: Mar, 1979, Volume 47, Issue 2

Allocation of Resources in Large Teams

https://doi.org/0012-9682(197903)47:2<361:AORILT>2.0.CO;2-M
p. 361-386

K. J. Arrow, R. Radner

We study a team with many processes; the output process depends on the resources allocated to it by the resource manager, on a local decision by the process manager, and on a (random) parameter of the process. We compare two communication patterns: (1) resource allocations are based on full information, but local decisions are based only on corresponding local information; (2) all decisions are based on full information. We show that, if the criterion is expected average output per process, and if the process parameters are independent and identically distributed, then (under certain regularity assumptions) for "large" teams the additional communication among process managers in (2) over (1) has approximately no value.