Communication in Organizations: Oligarchies, Hierarchies and Committees

Abstract

This paper investigates the performance of three forms of organizations: hierarchies, oiligarchies and committees. Sah and Stiglitz (1986) show that hierarchies and polyarchies differ in their information processing abilities in terns of type-1 and type-1 I errors, with 'fallible' agents making decisions. This paper modifies the structure of a polyarchv and calls it an oligarchy and examines this notion in terms of an incomplete information game where players receive private signals about the state of nature. A hierarchy is defined in terms of authority and the amount of communication allowed and it is shown that the statistical errors vary depending on the particular design of the organization. We show that hierarchies may lead to better information processing in terms of minimizing both types of statistical errors but polyarchies have an advantage In terms of time required to reach a decision. We, also, contrast hierarchical decision making with that of committees. This leads us to suggest that the information requirements for a "good" hierarchy are stringent and if such information is not available, committees present a suitable alternative. We also discuss the performance of these organizations when individuals do not share the same preferences and show that the position of individuals become important.