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Agency Theory

Publication: ResearchWorking paper

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.

Publication information

Original languageEnglish
Place of PublicationFrederiksberg
PublisherDjøf / Jurist- og Økonomforbundet
Number of pages22
ISBN (print)9788791815898
StatePublished - Apr 2013
SeriesSMG Working Paper
Number7

    Keywords

  • Adverse Selection, Agency Costs, Compensation, Conflict of Interest, Contracting, Corporate Governance, Delegation, Hidden Action, Hidden Characteristics, Incentive Intensity, Information Assymmetry, Informativeness, Monitoring, Mora Hazard, Motivation, Nexus of Contracts, Pay-for-Performance, Principal-agent Relationship, Second-best Solution

ID: 38381507