Blackwell Reference Online

Extract

The theory of agency, an approach that has seen many applications across the social sciences and the disciplines of management, seeks to understand the problems created when one party is acting for another. Agents typically face a variety of problems when acting for their principals, and principals face many problems in ensuring that the actions of their agents realize the principal's preferences. Thus agency, and the agency theory constructed to provide understanding of agency behaviors, shows two faces: the activities and problems of identifying and providing services of “acting for” (the agent side), and the activities and problems of guiding and correcting agent actions (the principal side). One of the key observations in agency theory is that all action has real or perceived costs, so that the corrections necessary to improve the quality of agent and principal actions in their relationship all have costs. As a result, it may not pay the agent, the principal, or third parties to invest in correction of this behavior where the gains from correction do not exceed the costs of performing the correction. A similar reasoning applies to the identification and specification of actions to be taken by the agent; it may not pay to find out exactly what the principal wants, nor to tell the agent that. In addition, a host of factors can produce specification and correction attempts that ... log in or subscribe to read full text