Interpersonal Authority in a Theory of the Firm | Zendy

Eric Van den Steen | Zendy

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Interpersonal Authority in a Theory of the Firm

Author(s) -

Eric Van den Steen

Publication year - 2010

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.100.1.466

Subject(s) - coase theorem , incentive , theory of the firm , economics , asset (computer security) , interpersonal communication , microeconomics , outcome (game theory) , asset specificity , contract theory , incomplete contracts , business , industrial organization , transaction cost , sociology , computer security , communication , computer science

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)

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