Latent and Explicit Authority in Hierarchical Organizations

We consider the problem of the exercise of authority within social production organizations, embedding the decision makers into a structure of formal authority relationships. We distinguish two types of behavior. First, we introduce an equilibrium notion implementing latent authority under which subordinates submit themselves to authority even though such authority is not en- forced explicitly. Second, we compare this with a non-cooperative equilibrium concept describing explicit exercise of authority. We show that for low enough enforcement costs both forms of authority will be exercised in equilibrium, but for higher enforcement costs latent authority will be exercised while explicit authority will not.