Formal and real authority in organizations

1. Aghion, P. and J. Tirole 1997, ‘Formal and real authority in organizations’, Journal of Political Economy, vol. 105, no. 1, pp. 1-29.

2. M. Colombo and M. Delmastro 2008, The Economics of Organizational Design: Theoretical Insights and Empirical Evidence, Palgrave MacMillan, Hampshire UK, Chapter 2.
Instructions
Taking the Aghion and Tirole (1997) model as a starting point, this question requires you to develop your own economic model of decision making.
1. First, identify a tradeoff between decentralisation (or delegation) and centralisation.
2. Develop an economic model that captures these tradeoffs.
3. Solve the model and provide some economic intuition for the results.
4. Relate the predictions of your model to the current literature on the optimal allocation of decision-making rights in the literature.
1. You are expected to undertake a reasonable amount of research in completing
this assignment certainly enough to answer the question. You do not need to know everything about the company you are studying, but you will need to have a good idea about at least a few
aspects of its architecture. In this assignment, you will be rewarded for the depth of (relevant) research that you undertake. This means that you do not have to analyze everything to do with
your company rather, focus on one or two aspects and analyze them in greater depth. The usual rules of academic referencing apply.
2. You must back up with evidence or logical reasoning all statements that you make. Your claims should, where appropriate, be supported by references to the existing work of experts. Any
references used need to detailed in the reference list at the end of the essay.
3. Given the word count, you will be rewarded from a concise synthesis of the relevant ideas/evidence/issues.

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