Documento de Trabajo CIIE, No. 2008-09

Organizational Architecture and the Degree of Flexibility in Production Costs

Gonzalo Castañeda* and Rubén Chavarín+
*El Colegio de México, +Universidad de Guadalajara.


Abstract

An agent-based model is built with the aim of explaining the effect of organizational architecture on the performance (network size and stability) of a business group. An artificial network is grown in which each node (firm) is subject to random income shocks while the degree of flexibility of the productive system (labor marker rigidity and technology’s capita-labor ratio) is assumed exogenously. Two variants of organizational architecture are considered: (i) decentralized management, where each node makes local decisions and behaves opportunistically with a positive probability when a troubled partner needs to be rescued and (ii) centralized management, where financial transfers from other firms are made with certainty as long as there are funds available, although, the functioning of this network entails some monitoring cost. This theoretical background is used to explore the Mexican experience of the nineteenth and twentieth centuries.


JEL Code: D23, D85, C15, N86
Key Words: organizational architecture; management systems; networks; agent-based model; Mexican firms