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Is Agency Theory Self-Activating?

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  • DANIEL G. ARCE

Abstract

"This article examines the conditions under which the principal-agent model is self-activating/socially causal. We do so by exploring a principal-agent framework that allows for the possibility that rational agents may hold intrinsic preferences for autonomy in decision making and experience disutility from being monitored. Using a dynamic model of preference formation, we identify conditions under which the principal-agent model is self-activating in that, over time, the introduction of the model in an otherwise efficient monitor-worker relationship leads to the inefficient adoption of the agency model. We also examine the extent to which the agency model is robust when autonomy-preferring agents are introduced into the population. "("JEL "G30, L20, C72) Copyright 2007 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 45 (2007)
Issue (Month): 4 (October)
Pages: 708-720

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Handle: RePEc:bla:ecinqu:v:45:y:2007:i:4:p:708-720

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Cited by:
  1. Stevens, Douglas E. & Thevaranjan, Alex, 2010. "A moral solution to the moral hazard problem," Accounting, Organizations and Society, Elsevier, vol. 35(1), pages 125-139, January.
  2. Arce, Daniel G., 2010. "Corporate virtue: Treatment of whistle blowers and the punishment of violators," European Journal of Political Economy, Elsevier, vol. 26(3), pages 363-371, September.
  3. Arce, Daniel G., 2013. "Principals’ preferences for agents with social preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 154-163.

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