Abstract
This chapter discusses the role of authority in the employment of labor. The employment contract is described by a probability distribution over the set of possible work assignments. This distribution is determined by the optimal assignment rule used by the employer to adjust work to production uncertainties. The assignment rule is endogenously determined as it may be influenced by the number of workers employed and this is determined by the wages found in the labor market. The chapter also discusses general model of the equilibrium in terms of authority. The contractual mode permits the employer to authoritatively select the tasks performed by workers. Authoritarian allocation of resources is a prevalent technique for distributing scarce resources, not only in centralized economies but also in economies with strong property rights. Not only should economists investigate conditions that result in widespread use of authority, but they should also investigate the limits and terms of authority.
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