InterJournal Complex Systems, 258
Status: Accepted
Manuscript Number: [258]
Submission Date: 981224
Revised On: 981229
Optimal Organizational Size in the Presence of Externalities
Author(s): Bennett Levitan ,Jose Lobo ,Stuart Kauffman ,Richard Schuler

Subject(s): CX.01, CX.43, CX.44

Category: Article


We consider a simple economic question: in a stochastic environment, how does group size relate to group performance in the presence of externalities? The search for improved organizational configurations is modeled as a random walk on a space of possible configurations whereby agents in a group periodically have the opportunity to accept or reject random changes in their characteristics. We have developed a modeling framework which allows the connections among the individual members constituting a group and the connections between groups (externalities) to be tuned independently. We present numerical results showing that for short search periods, large organizations with few externalities perform best; while for longer time horizons, the advantage accrues to small organizations with few externalities. As the time horizon continues to lengthen, a modest number of externalities enhances the payoff of small organizations. Under all circumstances, organizations on the "edge of chaos" appear to perform best.

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