The Principal’s Theory of Mind: The Role of Mentalizing for Reward Design and Management in Principal-Agent Relations

47 Pages Posted: 8 Jan 2013

See all articles by Nicolai J. Foss

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation

Diego Stea

Copenhagen Business School - Department of Strategic Management and Globalization

Date Written: January 4, 2013

Abstract

Agency theory is one of the most important foundational theories in management research, but it rests on tenuous cognitive assumptions. We combine classical agency theory with a realistic theory of the intrinsically imperfect human potential for interpersonal sensemaking. This allows us to systematically show how the principal’s ability to mentalize with the agent influences value creation in principal-agent relations, and to link this to organizational sensemaking instruments.

Keywords: Agency theory, value creation, mentalizing, cognitive psychology, reward management

JEL Classification: D83, D86, M12, M52

Suggested Citation

Foss, Nicolai J. and Stea, Diego, The Principal’s Theory of Mind: The Role of Mentalizing for Reward Design and Management in Principal-Agent Relations (January 4, 2013). Available at SSRN: https://ssrn.com/abstract=2197227 or http://dx.doi.org/10.2139/ssrn.2197227

Nicolai J. Foss (Contact Author)

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

Diego Stea

Copenhagen Business School - Department of Strategic Management and Globalization ( email )

Porcelænshaven 24
Frederiksberg, 2000
Denmark

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