Principal (commercial law)

About: Principal (commercial law) is a research topic. Over the lifetime, 1579 publications have been published within this topic receiving 35379 citations. The topic is also known as: Principal (commercial law).

Agency Theory: An Assessment and Review

Abstract: Agency theory is an important, yet controversial, theory. This paper reviews agency theory, its contributions to organization theory, and the extant empirical work and develops testable propositions. The conclusions are that agency theory (a) offers unique insight into information systems, outcome uncertainty, incentives, and risk and (b) is an empirically valid perspective, particularly when coupled with complementary perspectives. The principal recommendation is to incorporate an agency perspective in studies of the many problems having a cooperative structure.

The Economic Theory of Agency: The Principal's Problem.

Abstract: The relationship of agency is one of the oldest and commonest codified modes of social interaction. We will say that an agency relationship has arisen between two (or more) parties when one, designated as the agent, acts for, on behalf of, or as representative for the other, designated the principal, in a particular domain of decision problems. Examples of agency are universal. Essentially all contractural arrangements, as between employer and employee or the state and the governed, for example, contain important elements of agency. In addition, without explicitly studying the agency relationship, much of the economic literature on problems of moral hazard (see K. J. Arrow) is concerned with problems raised by agency. In a general equilibrium context the study of information flows (see J. Marschak and R. Radner) or of financial intermediaries in monetary models is also an example of agency theory. The canonical agency problem can be posed as follows. Assume that both the agent and the principal possess state independent von Neumann-Morgenstern utility functions, G(.) and U(.) respectively, and that they act so as to maximize their expected utility. The problems of agency are really most interesting when seen as involving choice under uncertainty and this is the view we will adopt. The agent may choose an act, aCA, a feasible action space, and the random payoff from this act, w(a, 0), will depend on the random state of nature O(EQ the state space set), unknown to the agent when a is chosen. By assumption the agent and the principal have agreed upon a fee schedule f to be paid to the agent for his services. T he fee, f, is generally a function of both the state of the world, 0, and the action, a, but we will assume that the action can influence the parties and, hence, the fee only through its impact on the payoff. T his permits us to write,

The Economics of Agency.

Abstract: : The agency relationship is a pervasive fact of economic life. Even in the limited sense in which the concept has traditionally been understood in ordinary and in legal discourse, the principal-agent relation is a phenomenon of significant scope and economic magnitude. But economic theory has recently recognized that analogous interactions are virtually universal in the economy, at least as one significant component of almost all transactions. The common element is the presence of two individuals. One (the agent) must choose an action from a number of alternative possibilities. The action affects the welfare of both the agent and another person, the principal. In this study of organizational efficiency this report discusses the following topics: (1) The Two Types--Hidden Action and Hidden Information;(2) Example--Public Utility Rate Setting; (3) Multiple Principles; (4) The Hidden-Action Model; (5) Monitoring; (6) Multiple Agents and Repeated Relations; (7) An Evaluation of Agency Theory.

The Wrong Kind of Transparency

Abstract: In a model of career concerns for experts, when is a principal hurt from observing more information about their agent? This Paper introduces a distinction between information on the consequence of the agent's action and information directly on the agent's action When the latter kind of information is available, the agent faces an incentive to disregard useful private signals and act according to how an able agent is expected to act a priori This conformist behaviour hurts the principal in two ways: the decision made by the agent is less likely to be the right one (discipline) and ex post it is more difficult to evaluate the agent's ability (sorting) The Paper identifies a necessary and sufficient condition on the agent signal structure under which transparency on action is detrimental to the principal The Paper also shows the existence of complementarities between transparency on action and transparency on consequence The results on the distinction between transparency on action and transparency on consequence are then used to interpret existing disclosure policies in politics, corporate governance, and delegated portfolio management