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Formal and Real Authority in Organizations

  • Aghion, Philippe
  • Tirole, Jean

This paper develops a theory of the allocation of formal authority (the right to decide) and real authority (the effective control over decisions) within organizations, and it illustrates how a formally integrated structure can accommodate various degrees of "real" integration. 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. After spelling out (some of) the main determinants of the delegation of formal authority within organizations, the paper examines a number of factors that increase the subordinates' real authority in a formally integrated structure: 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.

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File URL: http://dash.harvard.edu/bitstream/handle/1/4554125/Aghion_FormalRealA.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4554125.

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Date of creation: 1997
Date of revision:
Publication status: Published in Journal of Political Economy -Chicago-
Handle: RePEc:hrv:faseco:4554125
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  1. 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.
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