Optimal Allocation Of Authority Over Hiring Decisions

This paper develops a model based on Marino et al. (2009) which presents a theory of the allocation of authority in an organization in which the principal's real authority is constrained by the agent's ability to disobey the principal. Marino et al. (2009) extends the concept of real authority by observing that not only does the principal have to be informed to give an order, but also that the worker must be willing to follow the order. The main tool that the principal can use to enforce orders is the threat to dismissal. But the model doesn't distinguish the principal's from the organization's interests.In this paper, I first try to separate the payoff of the organization and of the principal (manager) by adding a owner (boss) into the model. Then I consider the optimal decision problem of the owner facing the uncertainties of the economic environment. The problem is whether to delegate the power of appointment to the manager, which is determined by the degree of uncertainty. I call a manager a qualified manager when his preference conform to the environment with a probability more than1 2.The main point of this paper is: When there is not much uncertainty about the economic environment, the owner should delegate the power of appointment to a qualified manager; otherwise, the owner should retain it.