We have learnt during recent decades that a main characteristic that differentiates between market economies and socialist ones is the centralized bureaucratic allocation that the latter imposes on the economy. Yet hierarchical bureaucracies can be found at the head of every largish organization, including successful western firms. This calls for a strengthening of the theory of bureaucratic hierarchies, which at present is not well-developed.
This paper will use a game theoretical approach to explain what makes socialist-type hierarchies inefficient and some other hierarchies quite effective. The differences will hinge on the environment of the hierarchy, i.e., the technology in its charge and its environment-dependent incentives, etc..
The result will be a model of a hierarchy which explains why centralized resource allocation is bound to lead to stagnant technologies, poor quality, and the other well-known ills of socialism, while a set of decentralized and competing hierarchies may become technologically vibrant.
I believe this approach is highly relevant to the study of economic systems and may become a kernel of a new paradigm of economic systems theory.