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Explicit and Latent Authority in Hierarchical Organizations

  • Rene van den Brink
  • Robert P. Gilles

In this paper we consider the problem of the control of access to a firm's productive asset, embedding the relevant decision makers into a general structure of formal authority relations. Within such an authority structure, each decision maker acts as a principal to some decision makers, while she acts as an agent in relation to certain other decision makers. We study under which conditions decision makers decide to exercise their own authority and to accept their superiors' authority. We distinguish two types of behavior within such an authority situation. First, we investigate a non-cooperative equilibrium concept describing the explicit, myopic exercise of authority. We find that if monitoring costs are sufficiently small, such explicit authority is exercised fully. Second, we consider the possibility of subordinates to submit themselves to authority even though such authority is not enforced explicitly. Again for sufficiently small monitoring costs such latent authority can be supported as an equilibrium

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 393.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:393
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  7. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
  8. Gilles, R.P. & Owen, G. & van den Brink, J.R., 1991. "Games with permission structures : The conjunctive approach," Research Memorandum FEW 473, Tilburg University, School of Economics and Management.
  9. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  10. Michael Keren & David Levhari, 1979. "The Optimum Span of Control in a Pure Hierarchy," Management Science, INFORMS, vol. 25(11), pages 1162-1172, November.
  11. David Pérez-Castrillo & David Wettstein, . "Bidding For The Surplus: A Non-Cooperative Approach To The Shapley Value," UFAE and IAE Working Papers 461.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  12. Prescott, Edward Simpson & Townsend, Robert M., 2002. "Collective Organizations versus Relative Performance Contracts: Inequality, Risk Sharing, and Moral Hazard," Journal of Economic Theory, Elsevier, vol. 103(2), pages 282-310, April.
  13. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
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  18. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
  19. Gilles, R.P. & Owen, G., 1999. "Cooperative Games and Disjunctive Permission Structures," Discussion Paper 1999-20, Tilburg University, Center for Economic Research.
  20. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 39-84.
  21. Wouter Dessein, 2000. "Authority and Communication in Organizations," Econometric Society World Congress 2000 Contributed Papers 1747, Econometric Society.
  22. Derks, Jean J M & Gilles, Robert P, 1995. "Hierarchical Organization Structures and Constraints on Coalition Formation," International Journal of Game Theory, Springer;Game Theory Society, vol. 24(2), pages 147-63.
  23. Yingyi Qian, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 527-544.
  24. Kessler, Anke S., 2000. "On Monitoring and Collusion in Hierarchies," Journal of Economic Theory, Elsevier, vol. 91(2), pages 280-291, April.
  25. Roth, Alvin E., 1977. "Utility functions for simple games," Journal of Economic Theory, Elsevier, vol. 16(2), pages 481-489, December.
  26. Ichiishi,Tatsuro, 1993. "The Cooperative Nature of the Firm," Cambridge Books, Cambridge University Press, number 9780521414449, December.
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