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  • March 2010
  • Article
  • American Economic Review

Interpersonal Authority in a Theory of the Firm

By: Eric J. Van den Steen
  • Format:Print
  • | Pages:25
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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 L22, D23, D81)

Keywords

Theory; Assets; Ownership; Motivation and Incentives; Governance Controls; Power and Influence; Projects; Perspective; Employees

Citation

Van den Steen, Eric J. "Interpersonal Authority in a Theory of the Firm." American Economic Review 100, no. 1 (March 2010): 466–490.
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About The Author

Eric J. Van den Steen

Strategy
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