Agency Problems and the Fate of Capitalism

Morck, Randall; Yeung, Bernard Yin

doi:10.2139/ssrn.1671207

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Agency Problems and the Fate of Capitalism

44 Pages Posted: 17 Oct 2010 Last revised: 26 Oct 2010

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore (NUS) - NUS Business School; SUSTECH Business School; ABFER

There are 2 versions of this paper

Date Written: October 16, 2010

Abstract

Economics has firms maximizing value and people maximizing utility, but firms are run by people. Agency theory concerns the mitigation of this internal contradiction in capitalism. Firms need charters, regulations and laws to restrain those entrusted with their governance, just as economies need constitutions and independent judiciaries to restrain those entrusted with government. Agency problems distort capital allocation if corporate insiders are inefficiently selected or incentivized, and this hampers economic growth absent a legal system with appropriate constraints. However, political economy problems and agency problems in corporations may reinforce each other, compromising the quality of both corporate governance and government.

Keywords: Principal Agent Problem, Corporate Governance, Economic History, Political Economy, Austrian School

JEL Classification: P1, B53, G28, G34, N20, P12

Suggested Citation: Suggested Citation

Morck, Randall K. and Yeung, Bernard Yin, Agency Problems and the Fate of Capitalism (October 16, 2010). Available at SSRN: https://ssrn.com/abstract=1671207 or http://dx.doi.org/10.2139/ssrn.1671207