Effects of Alternate Information Structures in a Decomposed Organization, A Laboratory Experiment

The literature on the decomposition of mathematical programs as models for organizational design and resource allocation in decentralized organizations is extensive. Unfortunately there has been little empirical investigation into the problems of applying these decompositions in organizations. This study reports on an experiment with human subjects as decision makers in a simulated decomposed organization. The formulation of the overall coordination and resource allocation problem as a linear program permitted two forms of decomposition: price-directive and resource-directive. Both schemes can be shown to solve the overall organizational problem but impose different information, communication, and decision making structures upon the subject decision makers. Results on subject performance for these two schemes are presented and discussed.