Horizontal vs. Vertical Information Structure of the Firm

This paper compares the efficiency of two information structures of the firm in coordinating operational decisions among technologically-interrelated constituent units (shops) whose costs are uncertain. The structures compared are a hierarchical one in which the capability of management to monitor and respond to emergent events at the shop level is bounded; and a horizontal one inwhich production decisions are coordinated among shops without the centralization of information, but the capability of semiautonomous problem-solving by component units im proves over time through learning-by-doing and better uses of on-the-spot knowledge. A comparison of Japanese and American practices precedes the analysis. Copyright 1986 by American Economic Association.