Informal Authority in Organizations

Posted: 17 May 1999

See all articles by George P. Baker

George P. Baker

HBS Negotiations, Organizations and Markets Unit; National Bureau of Economic Research (NBER)

Robert S. Gibbons

Massachusetts Institute of Technology - Sloan School and Department of Economics; National Bureau of Economic Research (NBER)

Kevin J. Murphy

University of Southern California - Marshall School of Business; USC Gould School of Law

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

Suggested Citation

Baker, George P. and Gibbons, Robert S. and Murphy, Kevin J., Informal Authority in Organizations. Journal of Law, Economics and Organization, Vol. 15, No. 1, Spring 1999. Available at SSRN: https://ssrn.com/abstract=162129

George P. Baker (Contact Author)

HBS Negotiations, Organizations and Markets Unit ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6119 (Phone)
617-496-4191 (Fax)

HOME PAGE: http://www.people.hbs.edu/gbaker/index.html

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Robert S. Gibbons

Massachusetts Institute of Technology - Sloan School and Department of Economics ( email )

E52-432
MIT
Cambridge, MA 02142
United States
617-253-0283 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kevin J. Murphy

University of Southern California - Marshall School of Business ( email )

BRI 308, MC 0804
Los Angeles, CA 90089-0804
United States
213-740-6553 (Phone)
213-740-6650 (Fax)

USC Gould School of Law

699 Exposition Boulevard
Los Angeles, CA 90089
United States

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