The notion of distributed knowledge is increasingly often invoked in discussions of economic
organization. In particular, the claim that authority is inefficient as a means of coordination in
the context of distributed knowledge has become widespread. However, very little analysis has
been dedicated to the relation between economic organization and distributed knowledge. In this
paper, we concentrate on the role of authority as a coordination mechanism under conditions of
distributed knowledge, and also briefly discuss other issues of economic organization. We clarify
the meanings of authority and distributed knowledge, and criticize the above claim by arguing
that authority may be a superior mechanism of coordination under distributed knowledge. We
also discuss how distributed knowledge influences the boundaries of firms. Our arguments rely
on insights in problem-solving and on ideas from organizational economics.