Interpersonal Authority in a Theory of the Firm
American Economic Review · 2010 · Volume 100 · Issue 1
Abstract
This paper develops a theory of the firm in which a firm's centralized asset ownership and low-powered incentives give the manager, as an equilibrium outcome, interpersonal authority over employees (in a world with open disagreement). The paper thus provides micro-foundations for the idea that bringing a project inside the firm gives the manager control over that project, while explaining concentrated asset ownership, low-powered incentives, and centralized authority as typical characteristics of firms. The paper also leads to new perspectives on the firm as a legal entity and on the relationship between the Knightian and Coasian views of the firm. (JEL D23, L20)
Keywords
Organizational Behavior, Transaction Costs, Property Rights, Firm Objectives, Organization, and Behavior: General
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