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.
Book preface, encycl. entry
International Encyclopedia of the Social & Behavioral Sciences, 2015, p. 344-350
Adverse selection; Agency costs; Compensation; Conflict of interest; Contracting; Corporate governance; Delegation; Hidden action; Hidden characteristics; Incentive intensity; Information asymmetry; Informativeness; Monitoring; Moral hazard; Motivation; Nexus of contracts; Pay for performance; Principal–agent relationship; Second-best solution