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The importance of legitimacy
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Akerlof, Robert J. (2017) The importance of legitimacy. The World Bank Economic Review, 30 (Supplement 1). S157-S165. doi:10.1093/wber/lhw009 ISSN 0258-6770.
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Official URL: http://dx.doi.org/10.1093/wber/lhw009
Abstract
Within organizations, there are typically limits to leaders' legitimacy. This article explores how organizations are structured in the face of such constraints. The concept of legitimacy is formalized in the context of a single-agent moral hazard model. The principal can give the agent monetary incentives; in addition, he can give the agent an order. The agent finds it costly to disobey orders provided they are legitimate. We find that it may be optimal for the principal to take costly actions to bolster legitimacy. We argue that many organizational phenomena can be understood as attempts to bolster legitimacy. Examples include: rejection of overqualified workers, bureaucracy, merger decisions, and above-market-clearing wages.
Item Type: | Journal Article | ||||||
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Subjects: | H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance |
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Divisions: | Faculty of Social Sciences > Economics | ||||||
Library of Congress Subject Headings (LCSH): | Moral hazard -- Mathematical models, Leadership, Consolidation and merger of corporations, Authority | ||||||
Journal or Publication Title: | The World Bank Economic Review | ||||||
Publisher: | Oxford University Press | ||||||
ISSN: | 0258-6770 | ||||||
Official Date: | 1 March 2017 | ||||||
Dates: |
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Volume: | 30 | ||||||
Number: | Supplement 1 | ||||||
Page Range: | S157-S165 | ||||||
DOI: | 10.1093/wber/lhw009 | ||||||
Status: | Peer Reviewed | ||||||
Publication Status: | Published | ||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||
Date of first compliant deposit: | 31 July 2018 | ||||||
Date of first compliant Open Access: | 31 July 2018 |
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