Use and Abuse of Authority

Episode von Volkswirtschaft - Open Access LMU - Teil 03/03 von Ludwig-Maximilians-Universität München · 1. November 2012

Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one-shot interactions, inducing them to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long-run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration – the abuse of authority – and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz’s (1972) critique of the Coasian approach.

Weitere Episoden von „Volkswirtschaft - Open Access LMU - Teil 03/03“

• Revealed Distributional Preferences: Individuals vs. Teams 24. Juni 2013
• Evolutionary determinants of war 22. April 2013
• Endogenous group formation in experimental contests 22. April 2013
• Do Multinationals Transplant their Business Model? 1. April 2013
• Do Multinationals Transplant their Business Model? 1. April 2013
• Unexpected Consequences of Ricardian Expectations 1. April 2013
• Strong, Bold, and Kind: Self-Control and Cooperation in Social Dilemmas 1. April 2013
• Strong, Bold, and Kind: Self-Control and Cooperation in Social Dilemmas 1. März 2013
• The Economic Effects of the Protestant Reformation: Testing the Weber Hypothesis in the German Lands 1. März 2013
• Alliances in the Shadow of Conflict 14. Januar 2013
• Cross-border loss offset can fuel tax competition 1. Januar 2013
• Reforming an Asymmetric Union: On the Virtues of Dual Tier Capital Taxation 1. Januar 2013
• The Political Economy of Educational Content and Development: Lessons from History 1. Januar 2013
• Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets 1. Dezember 2012
• Should tax policy favor high- or low-productivity firms? 1. Dezember 2012

Alle Episoden von Volkswirtschaft - Open Access LMU - Teil 03/03 · Mehr Bildung-Podcasts