DP4276 Balancedness of Real-Time Hierarchical Resource Allocation

Author(s): Timothy Van Zandt
Publication Date: March 2004
Keyword(s): bounded rationality, decentralization, hierarchies, real-time computation, resource allocation
JEL(s): D23, D83
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4276

We take the hierarchical resource allocation model in Van Zandt (2003a) and derive a simpler, reduced-form model of balanced hierarchies. This model uses continuous approximations; we derive bounds on the errors due to these approximations. We then give results that indicate that optimal hierarchies in the general model of are approximately balanced. In particular, we show that aggregation should be balanced if the hierarchical structure is balanced, and we show the hierarchical structure should be balanced if aggregation is balanced.