Bundling of authority and accountability in organizations

Abstract

Decision-making authority is often bundled with accountability. Decision makers are usually made accountable for failure. We propose an incomplete-contract approach to investigate four accountability systems: personal accountability, no accountability, collective accountability, and reverse accountability. We consider an organization defined by three assignments: income, authority, and accountability. These assignments are endogenously and jointly determined in equilibrium. Our main findings are: (1) authority and accountability are usually, but not always, bundled in equilibrium; (2) personal accountability and collective accountability are equally efficient, and no accountability and reverse accountability are equally efficient; (3) no accountability can be optimal if the authority is quite capable; (4) control tends to be assigned to managers whose personal benefit from and the marginal cost of control are relatively small; and (5) reverse accountability is generally inferior to personal accountability, but it can be optimal if the authority is quite capable and her marginal cost and personal benefit from control are sufficiently small.