Real - Time Hierarchical Resource

This paper considers a class of hierarchical procedures for allocating resources in a dynamic environment, in which resource allocations are computed in real time by an organization's administrative staa. Information about cost parameters ows up and is aggregated by the hierarchy, while allocations ow down and are disaggregated by the hierarchy. The hierarchical structure reeects the decentralization of decision making, which is distinguished from the decentralization of information processing. Multilevel hierarchies and decentralized decision making arise due to computational delay, rather than communication constraints. If the number of tiers is allowed to increase with the number of operatives, then computational delay does not inexorably lead to decreasing returns to scale. However, rm size is bounded when the managerial wage is positive, because the per-subordinate value of the highest tier falls to zero as the size of the hierarchy increases, whereas the highest tier's per-subordinate cost of computation is nearly constant. As the environment changes more rapidly, rms are smaller and more internally decentralized.