Efficiency and Cost Implications of Capital Allocation Mechanisms: A Contribution to the Market-versus-Hierarchy-Discussion [chapter]

Jens-W. Hinrichs, Stefan P. Klein
1997 Wirtschaftsinformatik '97  
The progress in modern information technology (IT) leads to changes in the organization of economic activity and enables new and innovative organizational structures. One example is the emergence of electronic markets. Electronic markets at the moment are primarily seen as a substitute for conventional markets. But there is also a tendency that electronic markets, because of sinking transaction costs, will break up -or even replace -hierarchical structures as well. This paper investigates
more » ... investigates whether the incorporation of an internal electronic market into an existing hierarchy can lead to an allocation of scarce resources which is superior to the allocation resulting from a conventional budgeting process. We compare this internal market with different simplified capital allocation mechanisms with respect to their ability to allocate scarce investment capital efficiently and with respect to the costs of these mechanisms. The analysis shows that under certain conditions internal electronic markets have significant advantages compared to conventional allocation mechanisms.
doi:10.1007/978-3-642-57737-6_9 fatcat:xkvx4hurxjbmtewvirptmxe46y