The comparative organisation of large and small firms: An information cost approach

Abstract

The paper introduces the concept of information cost and explains its relevance to the organisation of the firm. A distinction is drawn between autocratic and consultative management styles, and the economic logic of each style is explained in terms of information costs. It is argued that autocratic management is a rational organisational response to a business environment that contains a single dominant source of volatility, while consultative management is a rational response to multiple sources of volatility. It is argued that small firms exploit the advantages of the autocratic style. Small firms are therefore to be found predominantly in industries dominated by a single source of volatility.