Interpersonal Authority in a Theory of the Firm

Eric Van den Steen

American Economic Review, 2010, vol. 100, issue 1, 466-90

Abstract: This paper develops a theory of the firm in which a firm's centralized asset ownership and low-powered incentives give the manager, as an equilibrium outcome, interpersonal authority over employees (in a world with open disagreement). The paper thus provides micro-foundations for the idea that bringing a project inside the firm gives the manager control over that project, while explaining concentrated asset ownership, low-powered incentives, and centralized authority as typical characteristics of firms. The paper also leads to new perspectives on the firm as a legal entity and on the relationship between the Knightian and Coasian views of the firm. (JEL D23, L20)

JEL-codes: D23 L20 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/aer.100.1.466
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Citations: View citations in EconPapers (68)

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