Although Kenneth Arrow is probably best known for his contributions to methods of direct decision making and the theory of ideal market decentralization, he laid much of the groundwork for subsequent discussion on alternative methods of organization. By pointing out and developing the relationships between the competitive allocation mechanism and other planning procedures, he caused us to focus on issues such as information gathering, communication efficiency, and transmission costs in deciding among forms of economic organization.

We think it is fair to say that he set an agenda for the future in his presidential address to the American Economic Association in 1974 and in his Fels lectures (The limits to organization) published at roughly the same time. He pointed out the need for a better understanding of information costs and how they should be measured; he suggested that many of the problems faced in understanding the structure and operation of large organizations could be analyzed only by bringing information and communication channels more directly into the agenda of economists; and he advanced the view that the correct boundaries between internal and market allocations should be analyzed in those terms.

The contributions in this section explore various aspects of this agenda. Oniki addresses directly the question of how to measure the costs of communication. Drawing on ideas and concepts from information theory, he is able to quantify these costs and perform some suggestive comparisons between centralized and market mechanisms. Gorman motivates a view of the scope of the firm in terms of similarity of purpose and type of operation among production units. Making use of parallels with the theory of aggregation, he demonstrates the “information-saving” features of certain pseudomarket organizational forms.