The economic value of autonomy

We develop an economic theory of "autonomy", which we interpret as the discretion or ability to make a decision that others disagree with. We show that autonomy is essentially an option for the decisionmaker, and can be valued as such. The value of the autonomy option is decreasing in the extent to which the decisionmaker’s future decision-relevant opinion is correlated with the opinions of others who may be able to impede the decision.
We argue that autonomy drives economic decisions in a significant way. Even though autonomy is similar to control, it is quite different from the "private benefits of control" that the literature has analyzed extensively; we explicitly limit our examination of autonomy to situations in which the decisionmaker and those who can object to the decision are maximizing the same objective function. Explicit consideration of autonomy generates results that are strikingly different from those one would obtain in an agency or private-control-benefits setting. We illustrate the differences through an application involving an entrepreneur’s choice of autonomy in raising financing for a project. We also discuss a variety of other applications of autonomy.