Design of Decision-Making Organizations

Starting from the premise that individuals within an organization are fallible, this paper advances the study of relationships between the organization's decision-making structure and its performance. We offer a general treatment that allows one to analyze the full range of organizational architectures between extreme centralized and decentralized forms (often referred to as hierarchies and polyarchies). Our approach furthermore allows designers to examine the change in the overall reliability of the organizational structure as the number of actors within the organization changes. We provide general proofs that show how decision-making structures can be constructed so they maximize reliability for a given number of agents. Our model can be used directly for a qualitative assessment of decision-making structures. It is thereby useful for assessment of the many complicated hybrid structures that we see in actual decision-making organizations, such as banks, purchasing departments, and military intelligence. An application from a bank illustrates how our framework can be used in practice.