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Hierarchies of Processors with Endogenous Capacity

Authors
Journal
Journal of Economic Theory
0022-0531
Publisher
Elsevier
Publication Date
Volume
77
Issue
1
Identifiers
DOI: 10.1006/jeth.1997.2330

Abstract

Abstract Capacity is defined as the number of information items a processor can handle in a given time. This note studies the properties of a hierarchy of processors in which the capacities of processors are choice variables. The hierarchy must pay each processor it decides to employ a wage which is an increasing function of the processor's capacity. It is shown that efficient hierarchies tend to be characterized by three simple properties: (i) within any given level, capacity is uniform, (ii) across levels, the higher the level, the higher the capacity, and (iii) no skip-level reporting occurs. Journal of Economic LiteratureClassification Numbers: D21, J31, L23.

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