Abstract: This paper extends Ronald Coase’s (1937) insight on contractual authority by conceptualizing political authority as the key element that distinguishes organizations from markets. Political authority must be actively maintained, and the process of maintaining it shapes internal incentives and organizational productivity. We develop a principal–agent model in which superiors adjust the intensity of internal competition in response to institutional conditions in order to preserve political authority. The model shows that this mechanism not only reinforces the conventional view that strong legal institutions promote economic growth, but also provides a microfoundation for sustained high productivity under weak legal enforcement. Authority accumulation emerges as intrinsic to hierarchical organization rather than as a distortion: it constitutes a core mechanism through which organizations maintain stable operations and high productivity even in weak or volatile legal environments. Our theory offers implications for productivity divergence, economic inequality, and institutional stability.