This paper presents a theory of the allocation of authority in an organization in which centralization is limited by the agent's ability to disobey the principal. We show that workers are given more authority when they are costly to replace or do not mind looking for another job, even if they...

Many organizations attempt to manage agency problems not with incentive contracts but by keeping the principal involved in the decision process, that is, by limiting delegation. This paper develops a model to investigate the economics of several decision processes that are commonly used to set...

Standard models of team production imply that, due to the free rider problem, profit sharing tends to have negligible incentive effects in large organizations. Many observers therefore find the use of profit sharing in large firms puzzling. In this paper we show that if a firm can be decomposed...

This paper considers product recall under a perfect regime of strict liability. We show that safety is under supplied given output due to an under internalization of infra-marginal units. If we add a mandatory refund with a possible penalty fee in the event that the product turns out to be...

Many organizations attempt to manage agency problems not with incentive contracts but by keeping the principal involved in the decision process, that is, by limiting delegation. This paper develops a model to investigate the economics of several decision processes that are commonly used to set...