Accession Number : AD0746504

Title :   The Cost of Communication in Economic Organization.

Descriptive Note : Technical rept.,

Corporate Author : HARVARD UNIV CAMBRIDGE MASS

Personal Author(s) : Oniki,Hajime

Report Date : JUL 1972

Pagination or Media Count : 47

Abstract : The paper proposes a method for measuring communication costs in alternative economic organizations allocating scarce resources. A simple allocation problem for two firms with single-input and single-output production functions are considered, and the economic data (commodities and production functions) are approximated with finite and discrete sets. The paper then computes and compares the costs of internal communication in a centralized system and a competitive market mechanism by using Shannon's measure of information. It is found that (i) the market mechanism is definitely more economical with respect to communication costs if the required accuracy of allocation is high, but that (ii) the centralized system may be cheaper if the accuracy is allowed to be relatively low. (Author)

Descriptors :   (*ECONOMICS, MATHEMATICAL MODELS), COSTS, INFORMATION THEORY, DECISION MAKING, DATA TRANSMISSION SYSTEMS, CODING, DECODING, UNCERTAINTY

Subject Categories : Administration and Management
      Economics and Cost Analysis

Distribution Statement : APPROVED FOR PUBLIC RELEASE