Mori, Yusuke

We explore why authority within firms helps trading parties immediately settle ex post adaptation problems despite the possibility of a subordinate’s disobedience to the orders of his boss. By employing three crucial behavioral assumptions (reference-dependent preference, self-serving bias, and shading), we point out that the choice of governance structure affects trading parties’ expectations about outcome of ex post adaptations and show that a subordinate is likely to obey orders of his boss because he is expected to do so. Nevertheless, our study also points out that such a positive aspect of authority comes with subordinate’s psychological disutility

Osaka University Knowledge Archive

A Formal Behavioral Model of Firm Boundaries : Why Does Authority Relation Mitigate Ex Post Adaptation Problems?

http://www.iser.osaka-u.ac.jp/library/dp/2013/DP0863.pdf

A Formal Behavioral Model of Firm Boundaries : Why Does Authority Relation Mitigate Ex Post Adaptation Problems?

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Osaka University Knowledge Archive