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  3. American Economic Review
  4. March 2010
  5. Interpersonal Authority in a Theory of the Firm

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Interpersonal Authority in a Theory of the Firm

  • Eric Van den Steen
American Economic Review
vol. 100, no. 1, March 2010
(pp. 466–90)
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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)

Citation

Van den Steen, Eric. 2010. "Interpersonal Authority in a Theory of the Firm." American Economic Review, 100 (1): 466–90. DOI: 10.1257/aer.100.1.466

Additional Materials

JEL Classification

  • D23 Organizational Behavior; Transaction Costs; Property Rights
  • L20 Firm Objectives, Organization, and Behavior: General