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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.

Suggested Citation

  • Daniel G. Arce, 2007. "Is Agency Theory Self-Activating?," Economic Inquiry, Western Economic Association International, vol. 45(4), pages 708-720, October.
  • Handle: RePEc:bla:ecinqu:v:45:y:2007:i:4:p:708-720
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Daniel Arce & Mary Gentile, 2015. "Giving Voice to Values as a Leverage Point in Business Ethics Education," Journal of Business Ethics, Springer, vol. 131(3), pages 535-542, October.
    2. Arce, Daniel G., 2013. "Principals’ preferences for agents with social preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 154-163.
    3. 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.
    4. 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.
    5. Grischa Perino & Luca A. Panzone & Timothy Swanson, 2014. "Motivation Crowding In Real Consumption Decisions: Who Is Messing With My Groceries?," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 592-607, April.
    6. Jean Rabanal & Daniel Friedman, 2014. "Incomplete Information, Dynamic Stability and the Evolution of Preferences: Two Examples," Dynamic Games and Applications, Springer, vol. 4(4), pages 448-467, December.

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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