The Research On Authority Allocation In Organization Design

The allocation of authority is essentially a contract arrangement,which may not only increase the firm's outputs,but also coordinate the distribution of payoffs between the stakeholders if it is reasonable.Aghion and Tirole(1997) distinguished the real authority from the formal authority,and their result showed that the separation of formal authority and real authority has become popular in the organizations,which indicates that the study of organizational economics should focus on how to design the organizational structure now,but not confine itself only to property fights theory.Due to the trend that the information and knowledge are dispersive within the modern organizations,the allocation of authority in organizations exists among and in the divisions and hierarchies,other than relates to the interests between the owners and managers.Therefore,this thesis mainly focuses on how to design the right organizational form based upon the exterior and interior environment,so as to maximize the outputs subject to some restricted conditions.The thesis consists of one literature review and three essays on theoretic research, which analyze how authority allocation to be determined in the different organizational forms(U-Form and M-Form),in the different hierarchical structures(vertical hierarchy and horizontal hierarchy),and in a partnership organization under limited liability respectively,trying to regard the allocation of authority as an incentive tool to improve the organizations' efficiency by means of organizational design.The first chapter is an instruction of the whole thesis,which states the background and values of the selected title of the dissertation,then proposes the problems for study, and at last outlines the structure of the thesis.The second chapter surveys extensively the theories of organizational economics refer to the allocation of authority,and reviews the representative literatures.The third chapter compares the forms and effects of task assignment under M-form and U-form organizational structures,within the framework of a principalagent model.The advantage of the M-form organization is that the incentive tools are easier to take effect due to the independence of the payoffs among agents.While the advantage of the U-form organization is that the private costs are less,due to specialization that each agent in charge of something he is good at.Then we prove that if the tasks are highly complementary,then increasing the incentive with target at one task can necessarily increase the incentive for the other task,so the cost to offer incentive would decrease as a result.Hence,the advantage of M-form organization is weakened and the U-form organization becomes optimal.If the tasks are highly substitutable,then there exists no possibility for free-riding,the advantage of M-form organization disappeared as a result.So,the U-form organization also becomes optimal. Therefore,the M-form organization becomes optimal if and only if the tasks are intermediate complementary or substitutable.The fourth chapter analyzes the relationship between the allocation of authority and hierarchical structure mainly based upon the alignment of the agents' preference and the character of the decisions to be made,still within the framework of a principal -agent model.Since the decisions are non-contractible and not verified ex-post,the contracts remain incomplete.So,the principal should allocate authority.Due to the heterogeneity of agents,these preferences for the subjects would influence the allocation of authority.On the one hand,the allocation of authority determines the hierarchical structure;on the other hand,the hierarchical structure can change the incentive size to offer by the principal.Hence,the optimal allocation of authority is to find the optimal hierarchical structure.The most advantage of the vertical hierarchy is to offer only one agent incentive.However,the principal has to supply more incentive size to overcome the agent's preference.So,the vertical hierarchy is optimal if the agents have similar preferences over projects.Since each agent is in charge of one project under the horizontal hierarchy,both agents need be incentivized.When the agents prefer to differential projects,the principal would gain from the dissimilarity between them by making them in charge of the project they don't care to decrease the incentive size.So,the horizontal hierarchy is optimal if agents' preferences are substantially different.The fifth chapter discusses how to allocate authority between two parties when they cooperate in a partnership organization under limited liability,which does not belong to the framework of principal-agent model.Under unlimited liability,they could always design an optimal contract to maximize the project's surplus,due to that transfers based on project's output are unrestricted.However,under limited liability, the decision-maker might face a trade off between surplus maximization and distribution of surplus because of wealth constraints.So,the optimal contract is difficult to reach.Our results show that the allocation of authority affects the surplus little if the players' private costs are similar;that the player who has higher marginal cost gets the authority is optimal if the other player's bargaining power is weaker;that if one player has higher marginal cost but weaker bargaining power,then the other player would have the authority,resulting project's surplus less than the first best one.The last chapter states the conclusions of the thesis,and points out some prospects on allocation of authority in organization design.The possible innovation of the thesis includes two parts,which to certain extent forms some supplement and improvement for the authority allocation-related references.The first is to describe the relationship between the multi-task and the agents' preferences and endogenize the optimal organizational design by the allocation of authority.The second is to develop a bargaining model beyond the framework of principal-agent model and endogenize the allocation of authority by bargaining power measured with private cost.