Publication Date
Financial Markets Group Discussion Papers DP 918
An organization is autonomous if it has the right or power of self-government. Self-government implies that autonomous organizations cannot rely on outside parties for contract enforcement; all contracts must be relational or self-executing. We present a model in which an autonomous organization commits to a governance structure that allocates managerial power to some of its members. We show that the organization faces a trilemma: the goals of autonomy, decentralization, and efficiency conflict with one another. Thus, the optimal governance structure of an autonomous organization is centralized. Centralization implies inequality in power and payoffs among members of autonomous organizations.
