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Political Capital
[“Formal and Real Authority in Organizations]

Author

Listed:
  • Gabriele Gratton
  • Richard Holden
  • Barton E Lee

Abstract

An organization must make a binary choice in each of the two periods. The optimal choice depends on an unknown state of nature. The leader of the organization has a stock of political capital and observes a private signal of the state. The leader faces an intertemporal choice problem. She may choose to spend (some of) her political capital to increase the probability that the choice is not the one that would otherwise be made. Her political capital increases if the decision is correct ex post. We characterize the optimal use of political capital by the leader and how it evolves over time. We identify different leadership styles that depend on the initial stock of capital of the leader, the precision of her information, and the importance of the issue to her. We study how different leadership styles determine the evolution of power within the organization. Finally, we consider issues of optimal organizational design that structures the allocation of power to a leader. (JEL D21, D23, D71, D72).

Suggested Citation

  • Gabriele Gratton & Richard Holden & Barton E Lee, 2022. "Political Capital [“Formal and Real Authority in Organizations]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 38(3), pages 632-674.
    • Handle: RePEc:oup:jleorg:v:38:y:2022:i:3:p:632-674.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewab027
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    References listed on IDEAS

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    Cited by:

    1. Chen, Daniel L. & Michaeli, Moti & Spiro, Daniel, 2020. "Legitimizing Policy," TSE Working Papers 20-1123, Toulouse School of Economics (TSE).

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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