Surplus, Agency Theory and the Hobbesian Corporation

26 Pages Posted: 30 Jun 2013 Last revised: 16 Jan 2019

See all articles by Charles M. Elson

Charles M. Elson

University of Delaware - John L. Weinberg Center for Corporate Governance

Craig Ferrere


Date Written: June 28, 2013


The agency perspective has allowed us to understand a remarkable range of phenomena. It is the dominant theory for the study of corporations. The theory, however, in its current state of development, is limited in its explanatory power. It is capable of describing incentive provision, but it is incapable of addressing the allocation of value between the various parties to an enterprise.

As presently conceived, the main tenants of agency theory, chiefly being the self-interest of rational, self-maximizing actors, lead one to view the distribution of value as a result of ceaseless negotiation and conflict. This endless conflict is not however consistent with observation, which highlights a difficulty with the theory. In this essay, we will use both the agency analysis and also governance theory, so as to present a fuller, modified, conception of the corporation which resolves this difficulty.

The resolution to what would otherwise seem this unending “war of all against all” comes through governance and authority. The achievements of organizational goals require individuals to forfeit their autonomy and accept the stylized roles and duties prescribed to them by a governing party, so that the organization may function coherently. In this extension of agency theory, governance theory acts as an important and necessary complement to the current structured incentives perspective of agency theory, and the corporation, by deciding and fixing the allocation of value.

This essay was prepared for the 2013 Spring Business Law Symposium at the Wake Forest University School of Law, in response to the query “Agency Theory: Still Viable?”

Keywords: Agency Theory, Corporations, Corporate Law

Suggested Citation

Elson, Charles M. and Ferrere, Craig, Surplus, Agency Theory and the Hobbesian Corporation (June 28, 2013). Wake Forest Law Review, Forthcoming, Available at SSRN: or

Charles M. Elson

University of Delaware - John L. Weinberg Center for Corporate Governance ( email )

Alfred Lerner Hall, Room 104
Newark, DE 19716
United States
302-831-6157 (Phone)

Craig Ferrere (Contact Author)

Independent ( email )

New York, NY

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