IDEAS home Printed from https://ideas.repec.org/p/ecm/nasm04/393.html
   My bibliography  Save this paper

Explicit and Latent Authority in Hierarchical Organizations

Author

Listed:
  • Rene van den Brink
  • Robert P. Gilles

Abstract

In this paper we consider the problem of the control of access to a firm's productive asset, embedding the relevant decision makers into a general structure of formal authority relations. Within such an authority structure, each decision maker acts as a principal to some decision makers, while she acts as an agent in relation to certain other decision makers. We study under which conditions decision makers decide to exercise their own authority and to accept their superiors' authority. We distinguish two types of behavior within such an authority situation. First, we investigate a non-cooperative equilibrium concept describing the explicit, myopic exercise of authority. We find that if monitoring costs are sufficiently small, such explicit authority is exercised fully. Second, we consider the possibility of subordinates to submit themselves to authority even though such authority is not enforced explicitly. Again for sufficiently small monitoring costs such latent authority can be supported as an equilibrium

Suggested Citation

  • Rene van den Brink & Robert P. Gilles, 2004. "Explicit and Latent Authority in Hierarchical Organizations," Econometric Society 2004 North American Summer Meetings 393, Econometric Society.
    • Handle: RePEc:ecm:nasm04:393
    as

    Download full text from publisher

    File URL: https://gilles.econ.vt.edu/Papers/BG2003.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Yingyi Qian, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 527-544.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    4. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    5. Raghuram G. Rajan & Luigi Zingales, 2001. "The Firm as a Dedicated Hierarchy: A Theory of the Origins and Growth of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 805-851.
    6. Michael Keren & David Levhari, 1979. "The Optimum Span of Control in a Pure Hierarchy," Management Science, INFORMS, vol. 25(11), pages 1162-1172, November.
    7. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    8. Gilles, Robert P & Owen, Guillermo & van den Brink, Rene, 1992. "Games with Permission Structures: The Conjunctive Approach," International Journal of Game Theory, Springer;Game Theory Society, vol. 20(3), pages 277-293.
    9. Roth, Alvin, 2012. "The Shapley Value as a von Neumann-Morgenstern Utility," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 1-9.
    10. Gilles, R.P. & Owen, G., 1999. "Cooperative Games and Disjunctive Permission Structures," Discussion Paper 1999-20, Tilburg University, Center for Economic Research.
    11. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(1), pages 83-114.
    12. Derks, Jean J M & Gilles, Robert P, 1995. "Hierarchical Organization Structures and Constraints on Coalition Formation," International Journal of Game Theory, Springer;Game Theory Society, vol. 24(2), pages 147-163.
    13. Roger B. Myerson, 1977. "Graphs and Cooperation in Games," Mathematics of Operations Research, INFORMS, vol. 2(3), pages 225-229, August.
    14. repec:ner:ucllon:https://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    15. Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January.
    16. Perez-Castrillo, David & Wettstein, David, 2001. "Bidding for the Surplus : A Non-cooperative Approach to the Shapley Value," Journal of Economic Theory, Elsevier, vol. 100(2), pages 274-294, October.
    17. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 387-432.
    18. Ichiishi,Tatsuro, 1993. "The Cooperative Nature of the Firm," Cambridge Books, Cambridge University Press, number 9780521414449, October.
    19. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75(2), pages 123-123.
    20. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 39-84.
    21. Wouter Dessein, 2002. "Authority and Communication in Organizations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 811-838.
    22. van den Brink, Rene & Gilles, Robert P., 1996. "Axiomatizations of the Conjunctive Permission Value for Games with Permission Structures," Games and Economic Behavior, Elsevier, vol. 12(1), pages 113-126, January.
    23. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    24. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    25. Gilles, R.P. & Owen, G., 1999. "Cooperative Games and Disjunctive Permission Structures," Other publications TiSEM 4f162187-3069-4cb5-8353-5, Tilburg University, School of Economics and Management.
    26. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, vol. 8(3), pages 325-343, April.
    27. A. W. Beggs, 2001. "Queues and Hierarchies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(2), pages 297-322.
    28. Roth, Alvin E., 1977. "Utility functions for simple games," Journal of Economic Theory, Elsevier, vol. 16(2), pages 481-489, December.
    29. Kessler, Anke S., 2000. "On Monitoring and Collusion in Hierarchies," Journal of Economic Theory, Elsevier, vol. 91(2), pages 280-291, April.
    30. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    31. Michael Keren & David Levhari, 1983. "The Internal Organization of the Firm and the Shape of Average Costs," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 474-486, Autumn.
    32. Prescott, Edward Simpson & Townsend, Robert M., 2002. "Collective Organizations versus Relative Performance Contracts: Inequality, Risk Sharing, and Moral Hazard," Journal of Economic Theory, Elsevier, vol. 103(2), pages 282-310, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. van den Brink, J.R. & Gilles, R.P., 2005. "Explicit and Latent Authority in Hierarchical Organizations," Other publications TiSEM b4225229-4c7a-433f-8340-a, Tilburg University, School of Economics and Management.
    2. René Brink & Pieter Ruys, 2008. "Technology driven organizational structure of the firm," Annals of Finance, Springer, vol. 4(4), pages 481-503, October.
    3. René Brink, 2008. "Vertical wage differences in hierarchically structured firms," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 30(2), pages 225-243, February.
    4. René Brink, 2012. "On hierarchies and communication," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(4), pages 721-735, October.
    5. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    6. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    7. Choe, Chongwoo & Ishiguro, Shingo, 2008. "On the (Sub)optimality of Multi-tier Hierarchies: Coordination versus Motivation," MPRA Paper 13451, University Library of Munich, Germany.
    8. Tobias Hiller, 2021. "Hierarchy and the size of a firm," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 68(3), pages 389-404, September.
    9. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    10. van den Brink, J.R. & Ruys, P.H.M., 2005. "Technological Change, Wages and Firm Size," Discussion Paper 2005-022, Tilburg University, Tilburg Law and Economic Center.
    11. Deffains, Bruno & Demougin, Dominique M., 2006. "Governance: Who controls matters," SFB 649 Discussion Papers 2006-053, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    12. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    13. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
    14. Subhadip Chakrabarti & Amandine Ghintran & Rajnish Kumar, 2019. "Assignment of heterogeneous agents in trees under the permission value," Review of Economic Design, Springer;Society for Economic Design, vol. 23(3), pages 155-188, December.
    15. Bernard Baudry & Virgile Chassagnon, 2012. "The vertical network organization as a specific governance structure: what are the challenges for incomplete contracts theories and what are the theoretical implications for the boundaries of the (hub," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(2), pages 285-303, May.
    16. van den Brink, J.R. & Ruys, P.H.M., 2005. "Technological Change, Wages and Firm Size," Other publications TiSEM 98a153c9-4986-4d03-b695-c, Tilburg University, School of Economics and Management.
    17. René Brink, 2017. "Games with a permission structure - A survey on generalizations and applications," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 25(1), pages 1-33, April.
    18. Ilya Segal & Michael D.Whinston, 2012. "Property Rights [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    19. Maija Halonen‐Akatwijuka, 2010. "Organizational Design, Technology and the Boundaries of the Firm," Economica, London School of Economics and Political Science, vol. 77(307), pages 544-564, July.
    20. Paul Walker, 2015. "Contracts, Entrepreneurs, Market Creation And Judgement: The Contemporary Mainstream Theory Of The Firm In Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 29(2), pages 317-338, April.

    More about this item

    Keywords

    Theory of the firm; exercise of authority;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:nasm04:393. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.