Trust in Agency
AbstractExisting models of the principal-agent relationship assume the agent works only under extrinsic incentives. However, many observed agency contracts take the form of a fixed payment. For such contracts to work, the principal must trust the agent to work in the absence of incentives. I show that agency fosters the advent of intrinsic motivation and trustworthy behavior. Three distinct motivational schemes are analyzed: norms, ethical standards, and altruism. I identify conditions under which these mechanisms arise and show how they promote trust. The analysis alters several important predictions of conventional models: (1) Better outcomes may ensue in highly uncertain environments; (2) the principal is better off the more the agent is risk averse; and (3) larger equilibrium extrinsic incentives need not be associated with larger effort or larger total surplus. Copyright 2004 Blackwell Publishing, 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK..
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 13 (2004)
Issue (Month): 3 (09)
Contact details of provider:
Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Nicola Lacetera & Lorenzo Zirulia, 2011.
"Individual Preferences, Organization, and Competition in a Model of R&D Incentive Provision,"
NBER Working Papers
17031, National Bureau of Economic Research, Inc.
- Lacetera, Nicola & Zirulia, Lorenzo, 2012. "Individual preferences, organization, and competition in a model of R&D incentive provision," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 550-570.
- Bodo E. Steiner, 2007. "Negotiated transfer pricing: Theory and implications for value chains in agribusiness," Agribusiness, John Wiley & Sons, Ltd., vol. 23(2), pages 279-292.
- Ramalingam, Abhijit, 2009. ""Endogenous" Relative Concerns: The Impact of Workers' Characteristics on Status and Pro ts in the Firm," MPRA Paper 18759, University Library of Munich, Germany.
- L. Bottazzi & M. Da Rin & T. Hellmann, 2007.
"The Importance of Trust for Investment: Evidence from Venture Capital,"
612, Dipartimento Scienze Economiche, Universita' di Bologna.
- Laura Bottazzi & Marco Da Rin & Thomas Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 325, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Laura Bottazzi & Marco Da Rin & Thomas F. Hellmann, 2011. "The Importance of Trust for Investment: Evidence from Venture Capital," NBER Working Papers 16923, National Bureau of Economic Research, Inc.
- Michael T. Rauh & Giulio Seccia, 2005. "Incentives, Monitoring, and Motivation," Game Theory and Information 0506008, EconWPA.
- Christian Lukas & Jens Robert Schöndube, 2008. "Trust and Adaptive Learning in Implicit Contracts," FEMM Working Papers 08017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
- Matthias Bürker & G. Alfredo Minerva, 2012.
"Civic Capital and the Size Distribution of Plants: Short-Run Dynamics and Long-Run Equilibrium,"
2012.81, Fondazione Eni Enrico Mattei.
- Mathias Burker & G. Alfredo Minerva, 2012. "Civic capital and the size distribution of plants: Short-run dynamics and long-run equilibrium," Working Papers 123, University of California, Davis, Department of Economics.
- Eduard Alonso-Paulí, 2007. "The Adoption of a Code of Best Practice: Incentive Implications," Working Papers 07.18, Universidad Pablo de Olavide, Department of Economics.
- Michael T. Rauh, 2007. "Incentives, Solidarity, and the Division of Labor," Working Papers 2007-15, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Charness, Gary B & Cabrales, Antonio, 2008.
"Optimal Contracts With Team Production And Hidden Information: An Experiment,"
University of California at Santa Barbara, Economics Working Paper Series
qt3bb3p3t3, Department of Economics, UC Santa Barbara.
- Cabrales, Antonio & Charness, Gary, 2011. "Optimal contracts with team production and hidden information: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 163-176, February.
- Abhijit Ramalingam & Michael Rauh, 2008. "Firms, Markets, and the Work Ethic," Working Papers 2008-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Arce, Daniel G., 2013. "Principals’ preferences for agents with social preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 154-163.
- Hiller, Victor & Verdier, Thierry, 2014. "Corporate culture and identity investment in an industry equilibrium," Journal of Economic Behavior & Organization, Elsevier, vol. 103(C), pages 93-112.
- Dur, Robert & Tichem, Jan, 2013. "Altruism and Relational Incentives in the Workplace," IZA Discussion Papers 7363, Institute for the Study of Labor (IZA).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.