A recent economic literature analyzes institutions, such as firms, in
terms of incomplete contracts and property rights. The paper begins by
briefly summarizing this literature. The paper goes on to argue that
the incomplete-contracting approach can elucidate the meaning of autho
rity. The paper takes the point of view that someone has authority in
an economic relationship because they control some non-human assets in
the relationship, rather than because they control people directly. T
he advantage of such an approach is that it avoids a thorny question t
hat arises when authority is defined with respect to human assets: wha
t ensures that, if A has authority over B, B does what A wants? The pa
per also argues that authority may have little to do with communicatio
n: an employer may have authority over an employee even though the emp
loyer may act on information provided by the employee.