I am finally getting around to writing about the third paper in my MIT PhD thesis. The first paper was an empirical analysis of the impact of information technology on firm size. The second paper provided a model for how improvements in information technology can result in hybrid organizations. The third paper is both the most ambitious and also the most theoretical – it attempts to provide a general framework for analyzing communication in organizations. In rereading it I found a fair number of errors in the conversion from a paper copy to HTML which I have not yet had the time to fix, so apologies up front to anyone attempting to read it.
The motivation for the paper was that with changes in technology we have seen substantial changes in the nature of communication – what is communicated and how it is communicated. For instance, work by Joanne Yates documents the standardization of business communication around the time of the industrial revolution. She treats this standardization as an important innovation in its own right that enabled commerce. My paper was an attempt to show that this kind of standardization can be the natural outcome of a process of designing the optimal communication protocol in response to changing technology. Or put differently, the change in the communication technology (the rise of the telegraph) is the exogenous factor and the standardization of business communication is endogenous.
The basic structure of my model is that one party observes a state of the world and another party needs to take an action which has different benefits depending on the state. Without cost of communication it would always be optimal for the observer to transmit the exact state of the world so that the actor can choose the optimal action (with full information). In my model I introduce three types of communication costs: designing a protocol, encoding and decoding the state of the world, and transmitting the messages. The optimal choice of protocol then balances the benefits of being able to choose the action more precisely with the sum of these three costs.
The paper is divided into two parts. First a fairly general analysis of the properties of this kind of model. Second three more concrete examples: management by exception, standardization of communication, and centralization versus decentralization of decision making. In retrospect I wish I had stronger math skills when I was writing this or maybe sought out the help of a mathematician. I am pretty sure that someone more on top of their math could come up with more powerful results for the general case (part 1 of the paper). Instead, I wound up having to make fairly ad hoc and restrictive assumptions in part 2 about the structure of the state spaces and benefit functions in my analyses to get some results. This seems like an opportunity for someone who is currently in graduate school and is more mathematically capable!
