Some Organizational Properties of Resource Directive Allocation Mechanisms

By Jeffrey H. MooreJames R. Freeland
1975| Working Paper No. 289

This paper discusses some of the organizational aspects of a class of decentralized resource allocation mechanisms based in theory upon decomposition of linear programs. Organizational aspects refer to those attributes which have behavioral implications relevant to successful implementation of such mechanisms in real decentralized organizations. Of the two pure decentralized allocation mechanisms (price-directive and resource-directive), resource- directive mechanisms have received less attention in the literature. This paper focuses on these mechanisms and finds that under rather mild conditions (1) resource-directive decompositions induce a kind of structural degeneracy in the divisional problems; (2) the amount of degeneracy increases with the number of divisions and the number of scarce global resources; and (3) degeneracy “seeks its own level” in that degeneracies spread over the divisions. An important organizational aspect is that the plausible and economically appealing rule of allocating so as to equalize the marginal value of global resources is almost surely doomed to failure. Finally, some symmetries between price-directive and resource-directive mechanisms are summarized.