Part II of this book documented the existence of a central managerial dilemma: Managers face short-term incentives to choose inefficient incentive regimes for subordinates. Employees, knowing this, have no reason to trust employers with the information that would make it possible for employers to make efficient decisions. Hierarchy is thus a setting for a commitment problem. The problem can be resolved, but only through a set of strategies that are essentially political. To the extent that information asymmetries and team production externalities exist in firms, efficiency requires a political leadership style projecting trustworthiness and/or a constitutional constraint on the political authority of hierarchical superiors.

The picture of hierarchy that emerged in Part III is a long way from that provided by most organizational economics analyses. Managers spend scarce resources on communication and symbolic politics. Employees in small work groups monitor one another and sanction violations of work group norms. Managers and employees meet (formally or informally) to define constitutional rules that reallocate property rights and decisionmaking authority. This is a striking contrast to the normal pictures of managers writing “forcing contracts” and employees acting as self-interested expected utility maximizers subject to the incentive systems imposed by contracts.