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Power Dynamics in Organizations

Author

Listed:
  • Jin Li
  • Niko Matouschek
  • Michael Powell

Abstract

We examine an infinitely repeated game between a principal, who has the formal authority to decide on a project, and a biased agent, who is privately informed about what projects are available. The optimal relational contract speaks to how power is earned, lost, and retained. It shows that entrenched power structures are consistent with optimal administration of power. And it provides new perspectives on why similar firms organize differently, even when those organizational differences lead to persistent differences in performance, and why established firms fail to exploit new opportunities, even when they are publicly observable.

Suggested Citation

  • Jin Li & Niko Matouschek & Michael Powell, 2017. "Power Dynamics in Organizations," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 217-241, February.
  • Handle: RePEc:aea:aejmic:v:9:y:2017:i:1:p:217-41
    Note: DOI: 10.1257/mic.20150138
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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