Information and the Division of Labour: Implications for the Firm's Choice of Organisation

This paper provides a partial analysis of the organisational problem that arises from decentralised information within the firm. Firm members possessing different decision-relevant information can communicate in different ways, leading to a taxonomy of organisational structures with different effectiveness and costs. It is shown that, with usual assumptions about the form of the payoff function and the stochastic nature of information, the decision functions and the expected profit for different organisations have a simple linear form, comprising a small number of `information value' parameters.