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Organizational Governance: Managerial Discretion, Automatic Rules or Ethics?

Author

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  • Maria Alessandra Antonelli

    (Sapienza University of Rome)

Abstract

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.

Suggested Citation

  • Maria Alessandra Antonelli, 2014. "Organizational Governance: Managerial Discretion, Automatic Rules or Ethics?," Public Finance Research Papers 5, Istituto di Economia e Finanza, DSGE, Sapienza University of Rome.
    • Handle: RePEc:gfe:pfrp00:0005
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    File URL: https://www.dsge.uniroma1.it/sites/default/files/pubblicazioni/economia/research-papers/e-pfrp-n-5.pdf
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    References listed on IDEAS

    as
    1. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February.
    2. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    3. Kroszner,Randall S. & Putterman,Louis (ed.), 2009. "The Economic Nature of the Firm," Cambridge Books, Cambridge University Press, number 9780521193948.
    4. Bruno S. Frey & Fabian Homberg & Margit Osterloh, 2013. "Organizational Control Systems and Pay-for-Performance in the Public Service," CREMA Working Paper Series 2013-11, Center for Research in Economics, Management and the Arts (CREMA).
    5. Belligni, Silvano, 1999. "Corruzione, malcostume amministrativo e strategie etiche.Il ruolo dei codici," POLIS Working Papers 7, Institute of Public Policy and Public Choice - POLIS.
    6. Antonelli, Maria Alessandra, 2003. "Efficient Influence Activities with Endogenous Rent," Public Choice, Springer, vol. 114(1-2), pages 219-236, January.
    7. Kroszner,Randall S. & Putterman,Louis (ed.), 2009. "The Economic Nature of the Firm," Cambridge Books, Cambridge University Press, number 9780521141772.
    8. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(2), pages 285-300, Summer.
    9. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    10. 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, The Centre for Market and Public Organisation, University of Bristol, UK.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    organizations; influence activities; managerial discretion; principal-agent;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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