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Reciprocity and the Costs of Authority Relationships

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  • Nabil I. Al-Najjar
  • Chris Forman

Abstract

Authority relationships are viewed as reciprocal exchange in which a principal offers rents in return for subordinates' compliance with his authority. These rents induce compliance by creating a collective action problem among subordinates so they free-ride on each other in challenging the principal's authority. As a consequence of the payment of these rents, the cost of exercising authority may distort the principal's ex ante choice of internal authority relationship as an organizational form, relative to market exchange or formal, arms-length contracting.

Suggested Citation

  • Nabil I. Al-Najjar & Chris Forman, 1999. "Reciprocity and the Costs of Authority Relationships," Discussion Papers 1281, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1281
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    File URL: http://www.kellogg.northwestern.edu/research/math/papers/1281.pdf
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    References listed on IDEAS

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    1. Rob, Rafael, 1989. "Pollution claim settlements under private information," Journal of Economic Theory, Elsevier, vol. 47(2), pages 307-333, April.
    2. 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, pages 691-719.
    3. George J. Mailath & Andrew Postlewaite, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 351-367.
    4. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    5. John O. Ledyard & Thomas R. Palfrey, 1994. "Voting and Lottery Drafts as Efficient Public Goods Mechanisms," Review of Economic Studies, Oxford University Press, vol. 61(2), pages 327-355.
    6. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, pages 195-222.
    7. George J. Mailath & Andrew Postlewaite, 1990. "Workers Versus Firms: Bargaining Over a Firm's Value," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 369-380.
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    Cited by:

    1. Al-Najjar, Nabil I., 2001. "A reputational model of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 46(2), pages 165-191, October.

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