Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92763
Authors: 
Mori, Yusuke
Year of Publication: 
2013
Series/Report no.: 
ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 863
The ISER-Moriguchi Prize Awarded Paper 15
Abstract: 
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.
Subjects: 
reference-dependent preference
self-serving bias
contracts as reference points
transaction cost
ex post adaptation
JEL: 
D23
L22
Document Type: 
Working Paper

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