Power Dynamics in Organizations
American Economic Journal: Microeconomics
vol. 9,
no. 1, February 2017
(pp. 217-41)
Abstract
We examine an infinitely repeated game between a principal, who has the formal authority to decide on a project, and a biased agent, who is privately informed about what projects are available. The optimal relational contract speaks to how power is earned, lost, and retained. It shows that entrenched power structures are consistent with optimal administration of power. And it provides new perspectives on why similar firms organize differently, even when those organizational differences lead to persistent differences in performance, and why established firms fail to exploit new opportunities, even when they are publicly observable.Citation
Li, Jin, Niko Matouschek, and Michael Powell. 2017. "Power Dynamics in Organizations." American Economic Journal: Microeconomics, 9 (1): 217-41. DOI: 10.1257/mic.20150138Additional Materials
JEL Classification
- C73 Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
- D23 Organizational Behavior; Transaction Costs; Property Rights
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
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