Working Paper: CEPR ID: DP5391
Authors: Helmut Bester
Abstract: This paper views authority as the right to undertake decisions that impose externalities on other members of the organization. When only decision rights can be contractually assigned to one of the organization's stakeholders, the optimal assignment minimizes the resulting inefficiencies by giving control rights to the party with the highest stake in the organization's decisions. Under asymmetric information, theefficient allocation of authority depends on the communication of private information. In the case of multiple decision areas, divided control rights may enhance organizational efficiency unless there exist complementarities between different decisions.
Keywords: Authority; Decision Rights; Externalities; Imperfect Information; Incomplete Contracts; Theory of the Firm
JEL Codes: D23; D82; L22; P14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| assignment of decision rights (D70) | organizational efficiency (L21) |
| communication of private information (L96) | organizational efficiency (L21) |
| divided control rights (G34) | organizational efficiency (L21) |