Political Capital (join with Richard Holden and Barton Lee)

We consider an organization that must make a binary choice. The optimal choice depends on a state of nature. The leader of the organization has a stock of political capital and observes a private signal of the state. The leader may choose to spend (some of) her political capital to increase the probability that the choice is not the one that would otherwise be made. The leader's political capital increases if the decision is correct ex post. We characterize the optimal use of political capital by the leader and how it evolves over time. We identify different leadership styles that depend on the initial stock of capital in the leader's possession, the precision of her information, and the importance of the issue to her. We then consider issues of optimal organizational design that structure the allocation of power to a leader.


Associate Professor Gabriele Gratton​, University of New South Wales

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