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The allocation of authority under limited liability

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  • Puschke, Kerstin

Abstract

Authority is modelled as the right to undertake a non-contractible decision in a joint project. We show that the allocation of authority depends on bargaining power and differences in both parties cost functions. The decision-maker is assumed to exert an externality on the other parties. Overall surplus is shared according to generalized Nash bargaining. Under limited liability, the agent with the larger cost parameter receives authority if the agents' cost parameters are very different. If the agents have similar cost parameters, bargaining power determines the allocation of authority. Possible applications include the introduction of a new product.

Suggested Citation

  • Puschke, Kerstin, 2005. "The allocation of authority under limited liability," Discussion Papers 2005/25, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:200525
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    References listed on IDEAS

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    1. Helmut Bester, 2009. "Externalities, communication and the allocation of decision rights," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 269-296, November.
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    Cited by:

    1. Helmut Bester, 2009. "Externalities, communication and the allocation of decision rights," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 269-296, November.

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    More about this item

    Keywords

    Authority; Decision Rights; Incomplete Contracts;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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