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Given the distinction between power and authority, our aim in this paper is to set forth a framework for the analysis of the authority relation and the associated commanding within the firm based on the economics of convention. We begin by building a general model of the “authority convention,” distinguishing between two levels, namely, the “constitutive convention” and the “regulative convention.” We then argue that the authority convention is subjected to legitimization constraints which may produce divergence and conflict. Finally, we turn to the question of the efficiency of the authority convention. The issues of coordination and cooperation cannot be separated from those of legitimacy and conflict that arise in the employment relation. Classification JEL: L 20, Z10