Centralized vs. Market-Based and Decentralized Decision Making: a Review

Within both economics and computer science, many authors have claimed that decentralized or market-based approaches to decision-making are superior in general to centralized approaches. The contrary claim has also been made. Unfortunately, these claims are often supported only by informal or anecdotal evidence. In order to assess these competing claims, we present a review of the literatures in economics and in computer science bearing on these issues. Specifically, we report research findings based on empirical evidence and on simulation studies, and we outline the evidence based on formal deductive proofs or on informal and anecdotal evidence. Our main findings from this literature survey are: (i) for efficiency assessments, that there is wider variance in performance of organizations using Market-Based Control (MBC) than in organizations using Centralized Control (CC); (ii) that MBC and CC have the same efficiency on average; which may explain the observation (iii) that human and computer organizations tend to cycle between CC and Decentralized Control (DC) structures.