Organizational Governance: Managerial Discretion, Automatic Rules or Ethics?
Economic literature on organizations (Milgrom, 1998; Milgrom and Roberts 1992, 2009) points out that when distributive policies are discretionary realized within firms by managers, the agents working in the organization will undertake "influence activities" with possible negative effects on firm's productivity. Following the Milgrom's model (1988), we define a principal-agent framework analyzing alternative organizational governance methods. The paper shows that managerial discretion can always result in improved firm's performance with a principal complying with the organizational goals. Nevertheless, some reforms, especially in the public organizations, have been addressed to limit managerial discretion introducing more rules to template the mangers' behavior. Disappointing results suggest to invest for a greater development of ethical culture within organizations.
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- Milgrom, Paul R, 1988.
"Employment Contracts, Influence Activities, and Efficient Organization Design,"
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- Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK. Full references (including those not matched with items on IDEAS)
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