This paper presents a theory of the allocation of authority in an organization in which centralization is limited by the agent’s ability to disobey the principal. We show that workers are given more authority when they are costly to replace or do not mind looking for another job, even if they have no better information than the principal. The allocation of authority thus depends on external market conditions as well as the information and agency problems emphasized in the literature. Evidence from a national survey of organizations shows that worker autonomy is related to separation costs as the theory predicts.
Corporation and Enterprise Law | Organizations
Date of this Version
Anthony Marino, John G. Matsusaka, and Jan Zabojnik, "Disobedience and Authority" (August 2006). University of Southern California Law and Economics Working Paper Series. Working Paper 60.