Explicit and Latent Authority in Hierarchical Organizations

We consider the problem of control of access to a firm's productive asset, embedding the decision makers into a structure of formal authority relationships.Within such a structure, decision makers act as principal to some decision makers, while they act as agent to other decision makers.We study under which conditions decision makers exercise their own authority and accept their superiors' authority.We distinguish two types of behavior.First, we investigate a non-cooperative equilibrium concept describing explicit exercise of authority. Second, we consider the possibility of subordinates to submit themselves to authority even though such authority is not enforced explicitly.