Allocation of resources in a team
SUMMARY The informational efficiency of “price” and “demand” messages in a resource allocation mechanism is studied here with the aid of the theory of teams1 In the usual analysis of adjustment mechanisms (t?ttonnement, decomposition), the adjustment process is assumed to run to completion, so that all the allocation and resource decisions can be made on the basis of enough information to guarantee optimal decisions.a If, however, decisions must be made before the adjustment process is completed, say, after only a few iterations, then the decisions must be taken with limited information, and thus under conditions of uncertainty. This paper discusses a simple model in an attempt to examine explicitly these problems of uncertainty and limited information. A set of enterprise managers are assumed to produce various commodities, using scarce resources allocated to the enterprises by a resource manager. The enterprise managers also make decisions that affect their individual outputs. Varous kinds of communication among the managers, together with the corresponding information structures, are formulated, including the communication of price and demand messages. Optimal decision rules for the managers are calculated for the objective of maximizing the expected value of an index of total output. (It is assumed that the production functions and the