This paper concerns the design of the firm organization to obtain and use information efficiently in organization decision making. The focus is on coordination of shop managers' operating decisions through the choice of the organization structure such as the coordination system (hierarchical or horizontal) and information processing capacities of subordinates (specialists or generalists). Assuming that information acquiring, rocessing, and communication are costly, we show that in "volatile" environments, the optimal organization structure is the one typically found in Japanese firms, where coordination tasks are delegated to bordinates who are nonspecialized in tasks and information acquiring so that they can share each other's cn-the-spot knowledge.
This paper demonstrates that an optimizing model of a monetary economy can produce perfect foresight equilibria in which the price level fluctuates forever. Cyclically or chaotically fluctuating equilibria are more likely to exist when the rate of money supply growth is high. Furthermore, the set of equilibrium prices may have a complicated topological structure, which poses a more serious problem concerning the validity of comparative statics method than any sort of indeterminacy previously discussed in the literature. Copyright 1991 by The Econometric Society.
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The decentralization of decision-making is analyzed when agents may have information that is incomplete and possibly exclusive. Theorems provide conditions under which there exists a mechanism whose Bayesian equilibria coincide with a desired collection of social choice functions. The first theorem characterizes Bayesian implementation in economic environments with three or more individuals. The second theorem extends the analysis to noneconomic environments. An example exhibits differences between Bayesian implementation and Nash implementation. Copyright 1991 by The Econometric Society.
A normal Roy model with four sectors is developed. It allows to derive tests of several assumptions on the working of the labor market: strongly or weakly competitive or segmented. It shows that more important a feature of labor markets than segmentation is the presence of comparative advantages for individuals between the various economic sectors. The model is applied to data on women's labor-force participation in the main towns of Colombia in 1980. It uses multivariate probit and Tobit techniques. Copyright 1991 by The Econometric Society.
A sufficient condition for market demand to satisfy the Law of Demand is that the mean of all households' income effect matrices be positive definite. We show how this mean income effect matrix can be estimated from cross section data under metonymy, an assumption about the distribution of households' characteristics. The estimation procedure uses the nonparametric method of average derivatives. Income effect matrices estimated this way from U.K. family expenditure data are in fact positive definite. This result can be explained by a special form of heteroskedasticity in the data: households' demands are more dispersed at higher income levels.
This paper develops a decision-theoretic approach to normal-form refinements of Nash equilibrium and provides characterizations of (normal-form) perfect equilibrium and proper equilibrium. The approach relies on a theory of single-person decision-making that is a non-Archimedean version of subjective expected utility theory. Copyright 1991 by The Econometric Society.
IN A NOW CLASSICAL PAPER, Nash (1953) studied the following bilateral bargaining game: The two parties state their demands simultaneously. If these are compatible with a feasible agreement, each party gets the utility corresponding to his demand. Otherwise both parties get their conflict payoffs. Under quite general conditions this game has a continuum of equilibria: Any possible agreement which is both Pareto optimal and individually rational corresponds to a particular equilibrium point. Recently, the literature on sealed-bid double auctions (see, e.g., Leininger et al. (1989) and Matthews and Postlewaite (1989)) has extended Nash's model to the case where each party has incomplete information about the other party's valuation. A common feature of these models is that they lead to an even larger set of equilibria and, thus, to an aggravation of the nonuniqueness problem. In the present paper, we will show that this problem all but disappears if a different kind of uncertainty is introduced into Nash's model, viz. if one assumes that the parties make errors in choosing their actions in the bargaining process. This modification will be seen to imply the existence of an equilibrium which Pareto-dominates all other equilibria. The rationale for our assumption lies in the implausibly precise coordination needed to induce equilibrium play in Nash's original model: each (nontrivial) equilibrium consists of a pair of demands that are just compatible. Even an arbitrarily small deviation (in the wrong direction) will reduce both players to their conflict payoffs. By adding error terms to tne bids, we get rid of this discontinuity and force the players to weigh their demands against the risk of breakdown. Thus, our assumption could be seen as a way of accounting for the strategic uncertainty which seems practically unavoidable in a game where strategies are continuously variable. More fundamentally, the errors may be thought to reflect the presence of some uncertainty about the exact values of relevant parameters. Formally, the errors will be modeled by letting a player's bid result from the addition of a stochastic term to his strategy. The rules of Nash's game will also be modified by allowing a surplus to be divided between the players. While in Nash's model the players get precisely what they have demanded even when demands are more than compatible, we make the more general assumption that some fraction (ranging between zero and one) of the unclaimed surplus is divided between the parties according to a surplus partition rule. A similar assumption is made in the above-mentioned incomplete information models, but the severe indeterminacy makes it impossible to assess its influence. The above described equilibrium properties of our model hold for errors of arbitrary magnitude. Naturally, it is particularly interesting to study the properties when errors go to zero. In the special case where no surplus is divided, we find a convergence to the