Political and Non-Political Side Activities in an Agency Framework

Abstract

This paper studies side activities, including political activities, in the context of a hidden action agency problem. Increases in the number of employees working from home and increases in managerial political engagement, such activities have become more prevalent. We present the impact of these activities on the optimal contact, the agent's welfare, the firm's profit, and total welfare. For the case of political activities we study the impact of external negative and positive feedback as the result of these activities on the optimal contract and all equilibrium variables. We ask whether the firm should encourage or discourage or regulate these activities.

Keywords: Hidden Action, Side Activities

JEL Classification: L20, L21.