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Baker Gibbons Murphy (1999) - Informal Authority In Organizations (view source)
Revision as of 21:40, 10 December 2010
, 21:40, 10 December 2010no edit summary
When the boss gets <math>Y_L\;</math> projects she will be tempted to renege. If she breaks her promise, then subordinate will be playing the informed centralization game from then on, and the payoffs will be <math>X^C\;</math> (<math>=X_H\;</math>) and <math>Y^C\;</math> (<math>=Y_H\;</math>), for a joint surplus of <math>V^C\;</math>.
Therefore the boss (with a discount rate of <math>r\;</math>) will honour the promise if:
:<math>Y^L + \frac{1}{r} Y^D > \frac{1}{r} Y^C \quad \therefore Y^D - Y^C > -r Y_L\;</math>
Now the suppose that the subordinate is granted informal authority to propose projects that pay <math>Y_H \;</math> to the boss, and the boss will threaten to retract this authority and either rubber stamp or veto projects is she ever finds that a <math>Y_L\;</math> project has been proposed. This is the '''informal authority''' model. In this model it is the subordinate, not the boss, who is tempted to renege.
====Rubber Stamping====
Informal authority can occur if the present value from honouring it exceeds the present value from abusing it. If it is abused, we get the rubber stamp payoffs, which are the same as those to delegation (either <math>Y_L\;</math> or <math>Y_H\;</math> projects can be proposed and will be accepted). Formally we get informal authority if:
:<math>\frac{1}{r} X^C > X_H + \frac{1}{r} X^D \quad \therefore \X^C-X^D > r X_H\;</math>
