Without exaggeration the basic challenge of management is economics: how to choose to employ scarce productive resources to accomplish limited objectives effectively.It is well recognized today, and increasingly so in post-industrial societies, that information, broadly defined, is a strategic economic resource that must be managed if it is to be productive.A comprehensive literature has developed .in the discipline of economics which concerns information, information systems and information-related phenomena of import to management and the development of management information systems (MIS). Although this literature is vast, this overview attempts to relate some of this work to MIS and MIS research. We highlight results in three general areas:1) those which concern the effect of information upon economic markets external to the firm; 2) those which concern issues of information and its relation to decision making and the internal organization of the firm; and 3) those which concern questions of allocation and control of information resources within the firm.In particular, attention will be directed to interpretation of the major results related to the effect of information upon markets and upon individual decision making, team theory, agency theory, decomposition theory, resource allocation and pricing, incentives, and information evaluation.

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The literature on the deomposition of mathematical programs as models for organizational design and resource allocation in decentralized organizations is extensive. Although models differ in detail, all conceptualize the allocation problem as a multi-level managerial coordination procedure, involving local (divisional) and global (organization-wide) resources, in which informational automony is to be maintained. That is, coordination of resource usage by relatively autonomous divisions is to be effected in these models without any one agent in the organization accumulating complete knowledge of the technical resource transformations, payoff or cost coefficients and detailed plans that divisions utilize in converting resources to useful ends. Unfortunately there has been little empirical investigation into the implementational problems of applying these models in decentralized organizations. This study reports on an experiment with human subjects as decision makers in a simulated decentralized organization. The formulation of the overall resource-allocation problem as a linear program permitted two forms of coordination: price-directive in which transfer pricing is used to allocate resources, and resource-directive in which a rationing or budgeting approach is used. Both schemes can be shown to solve the overall organizational problem but impose different information, communication, and decision-making structures upon the subject managers. The experiment was designed to examine comparative managerial performance by the subjects, as central coordinating agents, under the alternative transfer pricing and budgeting schemes. Within each of these schemes two levels of decision time pressure were also introduced to examine its impact upon subject performance. The purpose of the investigation was to study the influence of organizational design (allocation scheme) and situational factors (time pressure) upon human decision-making under carefully controlled experimental conditions. The experimental setting was that of a decentralized university incorporating three subordinate college divisions and one coordinating agent, the president's office. The colleges were modeled as linear programs and the coordination function was assigned to the experimental subjects. In the price-directive scheme a subject assigned a transfer price to each of two global resources in each planning iteration. In the resource-directive scheme a subject directly allocated amounts of the two global resources to each of the colleges in each planning iteration. Consistent with decomposition theory, feedback to the subject in the form of aggregate resource demands (price-direction) or individual bids for higher resource allocations (resource-direction) was given to initiate a new planning iteration. The budgetary goal utilized by subjects was to maximize net dollar contribution from colleges to the university under prespecified quality-of-education constraints. After several planning iterations each subject finalized the resource allocations, terminating...

This paper develops theoretical results, for a class of coordination mechanisms for resource allocation in decentralized firms, using as a model the decomposition of linear programs. Of the two pure decentralized allocation mechanisms (price-directive and resource-directive), resource-directive mechanisms, based in concept upon rationing or budgeting procedures, have received less attention in the literature. This paper focuses on these mechanisms and reports that under rather mild conditions the use of the plausible and economically appealing rule of allocating a global resource so as to equalize its marginal value over alternate uses is almost surely doomed to failure. In particular it is found that (1) resource-directive decompositions induce a kind of structural degeneracy in the decentralized divisions; (2) the amount of degeneracy increases with the number of divisions and the number of scarce global resources; and (3) degeneracy "seeks its own level" in that degeneracies spread over the divisions. The implication of these results for those interested in organizational design is that caution should be observed in utilizing such a rule as equalizing marginal values, and that more complicated and costly procedures for effecting resource allocation may be required. Finally, some symmetries between price-directive and resource-directive mechanisms are summarized.

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