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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 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.

Suggested Citation

  • Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:4554125
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    References listed on IDEAS

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    1. Julio J. Rotemberg, 1993. "Power in Profit‐Maximizing Organizations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(2), pages 165-198, June.
    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. de Bijl, P.W.J., 1994. "Delegation of responsibility in organizations," Other publications TiSEM 83aefde3-3bff-4ebf-83a4-6, Tilburg University, School of Economics and Management.
    5. 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.
    6. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    7. 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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