Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Theory of Abuse of Authority in Hierarchies

Contents:

Author Info

  • Kouroche Vafaï
Registered author(s):

    Abstract

    This paper analyzes abuse of authority in a principal-supervisor-agent hierarchy under moral hazard. We characterize the optimal contracts when the supervisor takes advantage of his authority by blackmailing the agent. We show that the optimal policy for the principal is to deter abuse of authority. We find that, paradoxically, the existence of abuse of authority in hierarchies benefits in fine the victim (the agent) and not the instigator (the supervisor). Our analysis also reveals that the existence of abuse of authority in organizations expands the range of contractual incompleteness. Cet article étudie l'abus d'autorité dans une hiérarchie principal-superviseur-agent avec risque moral. Dans une telle structure, le superviseur dont le rôle consiste à faire un rapport sur le niveau d'effort de l'agent, peut abuser de son autorité en exerçant un chantage sur son subordonné. Lorsque le superviseur observe que l'agent a fourni le niveau d'effort désiré par le principal, il peut menacer l'agent d'un faux rapport dans lequel il signale n'avoir rien observé. Afin d'empêcher une telle menace, l'agent peut avoir intérêt à accepter le chantage du superviseur en lui versant un tribut. On étudie les contrats optimaux dans une telle structure hiérarchique. On montre qu'il est optimal pour le principal d'offrir des contrats qui empêchent l'abus d'autorité. Ces contrats détruisent l'enjeu du chantage en augmentant l'espérance de gain de l'agent. Ce résultat est surprenant car, paradoxalement, la possibilité d'abus d'autorité dans l'organisation profite finalement à la victime (l'agent) et non à l'instigateur (le superviseur).

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.cirano.qc.ca/pdf/publication/99s-07.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by CIRANO in its series CIRANO Working Papers with number 99s-07.

    as in new window
    Length:
    Date of creation: 01 Feb 1999
    Date of revision:
    Handle: RePEc:cir:cirwor:99s-07

    Contact details of provider:
    Postal: 2020 rue University, 25e étage, Montréal, Quéc, H3A 2A5
    Phone: (514) 985-4000
    Fax: (514) 985-4039
    Email:
    Web page: http://www.cirano.qc.ca/
    More information through EDIRC

    Related research

    Keywords: Agency; moral hazard; abuse of authority; blackmail; hierarchy; incomplete contracts; Contrats; risque moral; abus d'autorité; chantage; hiérarchie; contrats incomplets;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
    2. Huang, Peter H. & Wu, Ho-Mou, 1992. "Emotional responses in litigation," International Review of Law and Economics, Elsevier, vol. 12(1), pages 31-44, March.
    3. Jean Hindriks, Michael Keen and Abhinay Muthoo, . "Corruption, Extortion and Evasion," Economics Discussion Papers 470, University of Essex, Department of Economics.
    4. Perez-Castrillo, J.D. & Macho-Stadler, I., 1992. "Centralized and Decentralized Contracts in a Moral Hazad Environment," UFAE and IAE Working Papers 179.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    5. Tirole, Jean, 1991. "Collusion and the Theory of Organizations," IDEI Working Papers 9, Institut d'Économie Industrielle (IDEI), Toulouse.
    6. Prendergast, Canice & Topel, Robert H, 1996. "Favoritism in Organizations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 958-78, October.
    7. Bernheim, B Douglas & Whinston, Michael D, 1998. "Incomplete Contracts and Strategic Ambiguity," American Economic Review, American Economic Association, vol. 88(4), pages 902-32, September.
    8. Milgrom, Paul R., 1987. "employment contracts, influence activities and efficient organization design," Department of Economics, Working Paper Series qt6pf6c5j6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    9. Konrad, Kai A. & Skaperdas, Stergios, 1997. "Credible threats in extortion," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 23-39, May.
    10. Frank, Robert H, 1987. "If Homo Economicus Could Choose His Own Utility Function, Would He Want One with a Conscience?," American Economic Review, American Economic Association, vol. 77(4), pages 593-604, September.
    11. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February.
    12. Laffont, Jean-Jacques, 1990. "Analysis of Hidden Gaming in a Three-Level Hierarchy," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 301-24, Fall.
    13. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-56, May.
    14. Summers, Lawrence H. & Dickens, William T. & Katz, Lawrence F. & Lang, Kevin, 1989. "Employee Crime and the Monitoring Puzzle," Scholarly Articles 3645199, Harvard University Department of Economics.
    15. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
    16. Klein, Daniel B. & O'Flaherty, Brendan, 1993. "A game-theoretic rendering of promises and threats," Journal of Economic Behavior & Organization, Elsevier, vol. 21(3), pages 295-314, August.
    17. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    18. Laffont, Jean-Jacques & Rochet, Jean-Charles, 1997. " Collusion in Organizations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(4), pages 485-95, December.
    19. Elster, Jon, 1996. "Rationality and the Emotions," Economic Journal, Royal Economic Society, vol. 106(438), pages 1386-97, September.
    20. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
    21. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
    22. Laffont, Jean-Jacques, 1988. "Hidden Gaming in Hierarchies: Facts and Models," The Economic Record, The Economic Society of Australia, vol. 64(187), pages 295-306, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cir:cirwor:99s-07. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.