Agency Problems and the Fate of Capitalism
AbstractEconomics has firms maximizing value and people maximizing utility, but firms are run by people. Agency theory concerns the mitigation of this internal contradiction in capitalism. Firms need charters, regulations and laws to restrain those entrusted with their governance, just as economies need constitutions and independent judiciaries to restrain those entrusted with government. Agency problems distort capital allocation if corporate insiders are inefficiently selected or incentivized, and this hampers economic growth absent a legal system with appropriate constraints. However, political economy problems and agency problems in corporations may reinforce each other, compromising the quality of both corporate governance and government.
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Find related papers by JEL classification:
- B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
- P1 - Economic Systems - - Capitalist Systems
- P12 - Economic Systems - - Capitalist Systems - - - Capitalist Enterprises
This paper has been announced in the following NEP Reports:
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- NEP-CTA-2010-10-30 (Contract Theory & Applications)
- NEP-MIC-2010-10-30 (Microeconomics)
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