Agency Theory

35 Pages Posted: 24 Apr 2013

See all articles by Stefan Linder

Stefan Linder

ESSEC Business School

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation

Date Written: April 23, 2013

Abstract

Agency theory studies the problems and solutions linked to delegation of tasks from principals to agents in the context of conflicting interests between the parties. Beginning from clear assumptions about rationality, contracting and informational conditions, the theory addresses problems of ex ante (“hidden characteristics”) as well as ex post information asymmetry (“hidden action”), and examines conditions under which various kinds of incentive instruments and monitoring arrangements can be deployed to minimize the welfare loss. Its clear predictions and broad applicability have allowed agency theory to enjoy considerable scientific impact on social science; however, it has also attracted considerable criticism.

Keywords: adverse selection, agency costs, compensation, conflict of interest, contracting, corporate governance, delegation, hidden action, hidden characteristics, incentive intensity, information asymmetry, informativeness, monitoring, moral hazard, motivation, nexus of contracts, pay-for-performance, princ

JEL Classification: D23, D82, D86

Suggested Citation

Linder, Stefan and Foss, Nicolai J., Agency Theory (April 23, 2013). Available at SSRN: https://ssrn.com/abstract=2255895 or http://dx.doi.org/10.2139/ssrn.2255895

Stefan Linder

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

HOME PAGE: http://www.essec.edu

Nicolai J. Foss (Contact Author)

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

Kilen
Frederiksberg, 2000
Denmark

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