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"The Cost of Communication in Economic Organization," Quarterly Journal of Economics, Vol.88, 1974, pp.529-550.

• [Abstract]
• [Keywords]
• [Full Text]
• [Figures]

[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 accuray is allowed to be relatively low.

[Keywords]

economic organization, resource allocation, cost of internal communication, cost of adjustments, socialist controversies, information measure, computational complexities, Shannon measure

[Full Text]

The Quarterly Journal of Economics (June 1973) [PDF: 1,225KB]
Data for The Quarterly Journal of Economics (June 1973) [DOC: 7,617KB], [PDF: 93KB]
Queen's University Discussion Paper No.133 (Revised June 1973) [PDF: 1,468KB]
Harvard University Technical Report No.11 (July 1972) [PDF: 1,403KB]

[Figures]

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