Can Private Learn from Public Governance?

20 Pages Posted: 7 Dec 2005

See all articles by Bruno S. Frey

Bruno S. Frey

CREMA; University of Basel

Matthias Benz

University of Zurich - Department of Economics

Abstract

Corporate governance is importantly based on agency theory and relies on extrinsic incentives to align the interests of managers, employees and shareholders. This article argues that in view of recent corporate scandals, private governance can learn from public governance: (1) Goal-oriented intrinsic motivation of agents should be supported by fixed incomes and an extensive selection process of employees; (2) Extrinsic, but non-monetary incentives (e.g. conferring orders and titles) can be used; (3) The power of actors should be restricted by a clear division of power, appropriate rules of succession and institutionalised competition for positions in firms.

Suggested Citation

Frey, Bruno S. and Benz, Matthias, Can Private Learn from Public Governance?. Economic Journal, Vol. 115, No. 507, pp. F377-F396, November 2005. Available at SSRN: https://ssrn.com/abstract=856710 or http://dx.doi.org/10.1111/j.1468-0297.2005.01041.x

Bruno S. Frey (Contact Author)

CREMA ( email )

Südstrasse 11
Zurich, CH 8008
Switzerland
+41 44 380 00 78 (Phone)

University of Basel ( email )

Peter Merian-Weg 6
Basel, 4002
Switzerland

Matthias Benz

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

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