Political Capital

48 Pages Posted: 1 Apr 2019

See all articles by Gabriele Gratton

Gabriele Gratton

UNSW Australia Business School, School of Economics

Richard Holden

University of New South Wales (UNSW)

Barton E. Lee

UNSW, Australia

Date Written: March 30, 2019

Abstract

An organization must make a binary choice in each of two periods. The optimal choice depends on an unknown state of nature. The leader of the organization has a stock of political capital and observes a private signal of the state. The leader faces an inter-temporal choice problem. She may choose to spend (some of) her political capital to increase the probability that the choice is not the one that would otherwise be made. Her political capital increases if the decision is correct ex post. We characterize the optimal use of political capital by the leader and how it evolves over time. We identify different leadership styles that depend on the initial stock of capital of the leader, the precision of her information, and the importance of the issue to her. We study how differing leadership styles determine the evolution of power within the organization. Finally, we consider issues of optimal organizational design that structure the allocation of power to a leader.

Keywords: organizations, collective decisions, political capital, leadership styles

JEL Classification: D21, D23, D71, D72

Suggested Citation

Gratton, Gabriele and Holden, Richard and Lee, Barton E., Political Capital (March 30, 2019). UNSW Economics Working Paper 2019-04. Available at SSRN: https://ssrn.com/abstract=3363382 or http://dx.doi.org/10.2139/ssrn.3363382

Gabriele Gratton (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Richard Holden

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Barton E. Lee

UNSW, Australia ( email )

High Street
Sydney, NSW 2052
Australia

HOME PAGE: http://www.bartonelee.com

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