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Informal Authority in OrganizationsGeorge P. BakerHBS Negotiations, Organizations and Markets Unit; National Bureau of Economic Research (NBER) Robert S. GibbonsMassachusetts Institute of Technology - Sloan School and Department of Economics; National Bureau of Economic Research (NBER) Kevin J. MurphyUniversity of Southern California - Marshall School of Business; University of Southern California - Department of Economics; USC Gould School of Law Journal of Law, Economics and Organization, Vol. 15, No. 1, Spring 1999 Abstract: We assert that decision rights in organizations are not contractible: the boss can always overturn a subordinate's decision, so formal authority resides only at the top. Although decision rights cannot be formally delegated, they might be informally delegated through self-enforcing relational contracts. We examine the feasibility of informal authority in two informational environments. We show that different information structures produce different decisions not only because different information is brought to bear in the decision-making process, but also because different information creates different temptations to renege on relational contracts. In addition, we explore the implications of formal delegation achieved through divestitures.
JEL Classification: J54, D21, D23, L22 Accepted Paper SeriesDate posted: May 17, 1999Suggested CitationContact Information
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