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Organizational Governance: Managerial Discretion, Automatic Rules or Ethics?

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  • Maria Alessandra Antonelli

    ()
    (Sapienza University of Rome)

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    Abstract

    Economic literature on organizations (Milgrom, 1998; Milgrom and Roberts 1992, 2009) points out that when distributive policies are discretionary realized within firms by managers, the agents working in the organization will undertake "influence activities" with possible negative effects on firm's productivity. Following the Milgrom's model (1988), we define a principal-agent framework analyzing alternative organizational governance methods. The paper shows that managerial discretion can always result in improved firm's performance with a principal complying with the organizational goals. Nevertheless, some reforms, especially in the public organizations, have been addressed to limit managerial discretion introducing more rules to template the mangers' behavior. Disappointing results suggest to invest for a greater development of ethical culture within organizations.

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    File URL: http://www.digef.uniroma1.it/sites/default/files/pubblicazioni/economia/research-papers/e-pfrp-n-5.pdf
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    Bibliographic Info

    Paper provided by Istituto di Economia e Finanza, DIGEF, Sapienza University of Rome in its series Public Finance Research Papers with number 5.

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    Length: 18 pages
    Date of creation: May 2014
    Date of revision:
    Handle: RePEc:gfe:pfrp00:0005

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    Keywords: organizations; influence activities; managerial discretion; principal-agent;

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    1. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February.
    2. Antonelli, Maria Alessandra, 2003. " Efficient Influence Activities with Endogenous Rent," Public Choice, Springer, vol. 114(1-2), pages 219-36, January.
    3. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    4. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK.
    5. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 285-300, Summer.
    6. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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