This project investigates how information processing within firms influences their internal organization and their economies of scale. Information processing in a firm takes time; delay is costly because old information is not as valuable as new information. It is possible, up to a point, to reduce the delay in information processing by using more resources. This project will determine what delay is attainable for given resources. It will be done by modelling the managers of a firm as processing elements in a parallel processing computer. The investigators have obtained results for non-stochastic arrivals of data, and these indicate that the hierarchial organization of information processing is effective. They will consider explicitly the firm's decision problems in which the processed information is used, in order to calculate the cost of delay. The researchers will next determine how the need to process information affects returns to scale, given that the amount of information that must be processed in a firm increases with the size of the firm. Then they will study information processing when data arrives stochastically, as is most commonly the case except for periodic accounting data. This pioneering research promises to provide new insights concerning the role of information in the organization of firms. It will also fill an important void in our understanding of organizations and markets.
