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Consumers and Agency Problems

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  • Canice Prendergast

    (University of Chicago and NBER)

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    Abstract

    Consumers solve many agency problems, by pointing out when they believe that agents have made mistakes. I consider the role that consumers play in inducing efficient behaviour by agents. I distinguish cases where consumers have similar preferences to the principal, from those where they diverge. In the former case, allowing consumer feedback improves allocations, and increasing consumer information is unambiguously beneficial. Where consumers disagree with principals over desired outcomes, which characterises many public sector benefits, consumers" feedback about the performance of agents can reduce welfare. This may result in efficiently restricting the ability of consumers to complain about agent performance. Copyright Royal Economic Society 2002.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal Economic Journal.

    Volume (Year): 112 (2002)
    Issue (Month): 478 (March)
    Pages: C34-C51

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    Handle: RePEc:ecj:econjl:v:112:y:2002:i:478:p:c34-c51

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    1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
    2. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-72, June.
    3. Milbourn, Todd T & Shockley, Richard L & Thakor, Anjan V, 2001. "Managerial Career Concerns and Investments in Information," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 334-51, Summer.
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    Cited by:
    1. Klaus Abbink & Matthew Ellman, 2004. "The donor problem," Economics Working Papers 796, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.
    2. Liang, Pinghan, 2013. "Optimal delegation via a strategic intermediary," Games and Economic Behavior, Elsevier, vol. 82(C), pages 15-30.
    3. J. Atsu Amegashie, 2013. "Consumers' Complaints, the Nature of Corruption, and Social Welfare," CESifo Working Paper Series 4295, CESifo Group Munich.
    4. Amin, Mohammad, 2008. "Competition and demographics," Policy Research Working Paper Series 4514, The World Bank.
    5. O'Malley, Eoin & Scott, Susan & Sorrell, Steve, 2003. "Barriers to Energy Efficiency: Evidence from Selected Sectors," Research Series, Economic and Social Research Institute (ESRI), number PRS47.
    6. Liang, Pinghan, 2013. "Optimal delegation via a strategic intermediary," MPRA Paper 45271, University Library of Munich, Germany.
    7. Prat, Andrea, 2003. "The Wrong Kind of Transparency," CEPR Discussion Papers 3859, C.E.P.R. Discussion Papers.
    8. Liang, Pinghan, 2013. "Exit and voice: a game-theoretic analysis of customer complaint management," MPRA Paper 45268, University Library of Munich, Germany.

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