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Formal and Real Authority in Organizations

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  • Aghion, Philippe
  • Tirole, Jean

Abstract

This paper develops a theory of the allocation of formal and real authority within organizations. Real authority is determined by the structure of information, which in turn depends on the allocation of formal authority. An increase in an agent's real authority promotes initiative but results in a loss of control for the principal. The paper analyzes the allocation of formal authority as well as some determinants of the subordinates' real authority: overload, lenient rules, urgency of decision, reputation, performance measurement, and multiplicity of superiors. Finally, the amount of communication in an organization is shown to depend on the allocation of formal authority. Copyright 1997 by the University of Chicago.

Suggested Citation

  • 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.
    • Handle: RePEc:ucp:jpolec:v:105:y:1997:i:1:p:1-29
    DOI: 10.1086/262063
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    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. 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.
    3. 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.
    4. Julio J. Rotemberg, 1993. "Power in Profit‐Maximizing Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(2), pages 165-198, June.
    5. Aghion, Philippe & Tirole, Jean, 1995. "Some implications of growth for organizational form and ownership structure," European Economic Review, Elsevier, vol. 39(3-4), pages 440-455, April.
    6. de Bijl, P.W.J., 1994. "Delegation of responsibility in organizations," Discussion Paper 1994-69, Tilburg University, Center for Economic Research.
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