Informal authority in organizations

We assert that decision rights in organizations are not contractible: the b oss can always overturn a subordinate's decision, so formal authority resid es only at the top. Although decision Fights cannot be formally delegated, they might be informally delegated through self-enforcing relational contra cts. We examine the feasibility of informal authority in two informational environments. We show that different information structures produce differe nt decisions not only because different information is brought to bear in t he decision-making process, but also because different information creates different temptations to renege on relational contracts, In addition, we ex plore the implications of formal delegation achieved through divestitures.