Organizing Modular Production

Bryony Reich (Northwestern University, Kellogg School of Management)

September 19, 2023, 11:00–12:30


Room Auditorium 3

Economic Theory Seminar


Products are increasingly made by assembling separately produced modules. Motivated by the notion that a rms production function drives its organization, we explore how modular production shapes a rms communication structure. Decisions are partitioned into modules and require closer coordination within modules than across. Each agent knows the state his decision must be adapted to. The principal decides whom each agent tells about his state, given that each communication link comes at a cost. We show that optimal communication networks follow a simple threshold rule and exhibit the threshold property. Comparative statics corroborate the Mirroring Hypothesis.