Abstract

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 monitoring or contract enforcement. We present a model of the optimal power allocation in such an organization. The organization commits to a governance structure that allocates managerial power to agents. Members with power ("managers") can punish members without power ("subordinates"). This power is, however, limited by the subordinates' right to exit the organization. There are three main results. First, the goals of autonomy, decentralization, and efficiency conflict with one another. We call this result the Organizational Trilemma. Second, there is a Paradox of Power: an agent can be made worse off by their own power. Third, optimal governance structures in autonomous organizations are centralized and populist: the powerful party shows restraint in early periods, only to abuse their power in later periods.

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