Authority, Incentives and Performance: Theory and Evidence from a Chinese Newspaper

Authority defines the formal structure of an organization, and is essential for the allocation of resources inside the firm. This paper develops a theory of authority in a multiple layer hierarchy, in which the distribution of authority alleviates incentive incompatibilities. To examine the theory, I collect monthly personnel data from about 200 journalists over three years in a Chinese newspaper, and provide evidence on their incentives and performance under two basic organizational forms – centralization and decentralization. Relying on an unexpected organizational reform from decentralizing to centralizing editorial power in some divisions of the newspaper, I find three main results: 1) centralization improves the quality of the journalists’performance, in terms of the newspaper’s internal assessment and the external measures of news content; 2) centralization reduces the journalists’activities for private gain; 3) centralization decreases the editorial activities conducted by managing editors. These results are in line with the theory: a more centralized hierarchy achieves better control over workers’opportunistic behaviour, at the cost of depressing middle managers’initiative.