authority, decision rights, externalities, incomplete contracts, imperfect information, theory of the firm
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This paper views authority as the right to undertake decisions that impose
externalities on other members of the organization. When only decision rights
can be contractually assigned to one of the organization's stakeholders, the
optimal assignment minimizes the resulting ineffciencies by giving control
rights to the party with the highest stake in the organization's decisions.
Under asymmetric information, the effcient allocation of authority depends
on the communication of private information. In the case of multiple decision
areas, divided control rights may enhance organizational effciency unless there
exist complementarities between different decisions.
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