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The allocation of authority under limited liability

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Author Info
Puschke, Kerstin

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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.

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File URL: http://hdl.handle.net/10419/28023
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Publisher Info
Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2005/25.

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Date of creation: 2005
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Handle: RePEc:zbw:fubsbe:200525

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Related research
Keywords: Authority; Decision Rights; Incomplete Contracts;

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Find related papers by 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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  1. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1999. "Informal Authority in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 56-73, April.
  2. Raghuram G. Rajan & Luigi Zingales, 1998. "Power In A Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 387-432, May. [Downloadable!] (restricted)
    Other versions:
  3. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    Other versions:
  4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
    Other versions:
  5. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
  6. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 473-94, July. [Downloadable!] (restricted)
  7. 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.
  8. Dessein, Wouter, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 811-38, October.
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Cited by:
(explanations, 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.)

  1. Helmut Bester, 2005. "Externalities, Communication and the Allocation of Decision Rights," Discussion Papers 69, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  2. Helmut Bester, 2009. "Externalities, communication and the allocation of decision rights," Economic Theory, Springer, vol. 41(2), pages 269-296, November. [Downloadable!] (restricted)
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