Decentralization

The main question to be answered by the theory of resource allocation, or by the theory of economic organization, concerns the performances of alternative systems characterized by different degrees of centralization of decision taking. A fully centralized system runs the risk of being inefficient because it does not create proper economic incentives and the centre is poorly informed. A pure market system with its high degree of decentralization runs the risk of bringing inequitable results and being inefficient because markets can never be complete, externalities exist and public wants tend to be neglected. Can these risks be avoided within the two opposite extremes of pure centralization or full decentralization? Can intermediate systems better resolve the difficulties? And if so, how?