Authority in a theory of the firm

Dezsoe Szalay and Inga Deimen

No 15026, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study a simple model of the firm comprised of a production unit, a sales unit, and an owner with interests in both units. The owner has the right to adapt the production quantity to changes in demand and costs. Whether the owner effectively assumes this right or delegates decision-making depends on the relative uncertainty about demand and costs, on the division of surplus in the firm, and on the riskiness of the environment the firm faces. We characterize conditions that make acquiring ownership rights feasible and effcient. The same conditions determine the boundaries of the firm in our model.

Keywords: Ownership; Authority; Strategic communication; Delegation; Organizations; Noisy information; Common and private values (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-bec and nep-mic
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