Casson M. and Wadeson N. (1996), “Information Strategies and the Theory of the Firm”, International Journal of the Economics of Business, 3, pp. 307-330.

Available electronically through Business Source Premier

ABSTRACT Information costs play a key role in determining the relative efficiency of alternative organisational structures. The choice of locations at which information is stored in a firm is an important determinant of its information costs. A specific example of information use is modelled in order to explore what factors determine whether information should be stored centrally or locally and if it should be replicated at different sites. This provides insights into why firms are structured hierarchically, with some decisions and tasks being performed centrally and others at different levels of decentralisation. The effects of new information technologies are also discussed. These can radically alter the patterns and levels of information costs within a firm and so can cause substantial changes in organisational structure.

The paper contains a model of information storage, communication, and use.

In the model there is a network consisting of a central node and a number of local nodes.

Each local node has its own information. It also periodically needs information from other local nodes.

It is costly to communicate information, to store information, and to update stores when information changes.

So, for instance, should:

• Each local node refer to other local nodes when it needs their information?

• Each local node store all the other local nodes’ information?

• The central node store the information of all the local nodes so that when any local node needs information from another local node it refers to the central node?

• Each local node refer to the central node when it needs information from another local node so that the central node can retrieve the information from the other local node?

References

Bolton, P. and Dewatripont, M., "The Firm as a Communications Network", Quarterly Journal of Economics, 1994, 109, 809-39.

Brynjolfsson, E. et al., "Does Information Technology Lead to Smaller Firms", Management Science, 1994, 40, 1628-63.

Carter, M. "Information and the Division of Labour: Implications for the Firm's Choice of Organisation", Economic Journal, 1995, 105, 385-97.

Casson, M.C., "Why are Firms Hierarchical?", International Journal of Economics of Business, 1994, 1, 47-76.

Casson, M.C., Organisation of International Business, Aldershot: Edward Elgar, 1995.

Demski, J.S., Information Analysis, 2nd edn, Reading, MA: Addison-Wesley, 1980.

Hayek, F.A. yon, "Economics and Knowledge", Economica, 1937, 4, 33-54.

Markus, M.K. and Robey, D., "Information Technology and Organizational Change: Causal Structure in Theory and Research", Management Science, 1988, 34, 583-98.

Marschak, J. and Radner, R., Economic Theory of Teams, New Haven, CT: Yale University Press, 1972.

McLoughlin, I. and Clark, J., Technological Change at Work, 2nd edn, Buckingham, Philadelphia: Open University Press, 1994.

Oxborrow, E., Databases and Database Systems, 2nd edn, Bromley, Kent: Chartwell-Bratt, 1989.

Radner, R., "Hierarchy: The Economics of Managing", Journal of Economic Literature, 1992, 30, 1382-1415.

Home Page