Simon says? Equilibrium obedience and the limits of authority

Heikki Rantakari

The Journal of Law, Economics, and Organization, 2025, vol. 41, issue 2, 455-497

Abstract: Authority, as the right to instruct others and to expect obedience, is often presented as a key mechanism for coordination. But when obedience is voluntary, how is authority sustained and how effective is it in managing behavior? This article examines a repeated game of collaboration with no formal contracting. In equilibrium, the players self-organize either horizontally, with each player evaluating and executing his own task, or vertically, where a single player (“superior”) evaluates both tasks and then instructs the other (“subordinate”) what to do. Interpreting the latter as an authority relationship, obedience is then sustained solely by the value of the relationship. Either arrangement can be optimal. The main advantage of authority arises from the superior’s ability to control the information available to the subordinate, limiting the subordinate’s opportunism, while the main disadvantage of authority arises from the superior’s temptation to abuse the (endogenous) ignorance of the subordinate (JEL D23, D83, L23).

Date: 2025
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