Publisher:
Sonderforschungsbereich/Transregio 15 Governance and the Efficiency of Economic Systems, München
This paper views authority as the right to undertake decisions that have external effects on other members of the organization. Because of contractual incompleteness, monetary incentives are insufficient to internalize these effects in the decision...
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signature:
DS 445 (23)
Inter-library loan:
No inter-library loan
This paper views authority as the right to undertake decisions that have external effects on other members of the organization. Because of contractual incompleteness, monetary incentives are insufficient to internalize these effects in the decision maker's objective. The optimal assignment of decision rights minimizes the resulting inefficiencies. We illustrate this in a principal-agent model where the principal retains the authority to select ' large' projects but delegates the decision right to the agent to implement ' small' projects. Extensions of the model discuss the role of effort incentives, asymmetric information and multistage decisions.
