COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 775R "A Theory of Hierarchies Based on Limited Managerial Attention" John Geanakoplos and Paul Milgrom Revised October 1988 Our purpose in this paper is to investigate the economics of managerial organizations by focusing on the decision problem of management. Ours is a "team theory" analysis, that is, it ignores the problem of conflicting objectives among managers and focuses instead on the problem of coordinating the decisions of several imperfectly informed actors. However, unlike classical team theory, we concentrate on the choice by managers of what to know, as well as what to do, and we allow the possibility that bounded rationality limits the managers' ability to understand subtle messages. |
