Spending Political Capital

Formal and real authority in organizations

Arthur Campbell

The Economic Journal, 2021, vol. 131, issue 640, 3103-3121

Abstract: An important task for organisations is establishing truthful communication between parties with differing interests. This task is made particularly challenging when the accuracy of the information is poorly observed or not at all. In these settings, incentive contracts based on the accuracy of information will not be very effective. This paper considers an alternative mechanism that does not require any signal of the accuracy of any information communicated to provide incentives for truthful communication. Rather, an expert sacrifices future participation in decision-making to influence the current period’s decision in favour of their preferred project. This mechanism captures a notion often described as ‘political capital’ whereby an individual is able to achieve their own preferred decision in the current period at the expense of being able to exert influence in future decisions (‘spending political capital’). When the first-best is not possible in this setting, I show that experts hold more influence than under the first-best and that, in a multi-agent extension, a finite team size is optimal. Together these results suggest that a small number of individuals hold excessive influence in organisations.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1093/ej/ueab040 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:econjl:v:131:y:2021:i:640:p:3103-3121.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Economic Journal is currently edited by Francesco Lippi

More articles in The Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press () and ().