Organizational Governance: Managerial Discretion, Automatic Rules or Ethics?

Maria Alessandra Antonelli ()
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Maria Alessandra Antonelli: Sapienza University of Rome

No 5, Public Finance Research Papers from Istituto di Economia e Finanza, DSGE, Sapienza University of Rome

Abstract: Economic literature on organizations (Milgrom, 1998; Milgrom and Roberts 1992, 2009) points out that when distributive policies are discretionary realized within firms by managers, the agents working in the organization will undertake "influence activities" with possible negative effects on firm's productivity. Following the Milgrom's model (1988), we define a principal-agent framework analyzing alternative organizational governance methods. The paper shows that managerial discretion can always result in improved firm's performance with a principal complying with the organizational goals. Nevertheless, some reforms, especially in the public organizations, have been addressed to limit managerial discretion introducing more rules to template the mangers' behavior. Disappointing results suggest to invest for a greater development of ethical culture within organizations.

Keywords: organizations; influence activities; managerial discretion; principal-agent (search for similar items in EconPapers)
JEL-codes: D23 L2 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2014-05
New Economics Papers: this item is included in nep-bec and nep-hrm
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