Committees, Hierarchies and Polyarchies

This paper examines optimal decision making under three different organizational forms: committees, hierarchies, and polyarchies. Focus is on the trade-off between errors of rejecting good projects versus errors of accepting bad projects, and on the trade-off between gains from more extensive evaluations of projects versus costs of evaluation. The authors characterize the optimal sizes of these organizations (as well as the optimal level of consensus in committees), and then analyze how these optima change under different organizational environments. They also analyze the influence of organizational environment on the relative performance of these alternative organizational forms.