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The Agency Problem in the Romanian State Owned Enterprise: The “Contractual Paradox”

Author

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  • Valentin M. Ionescu

    (Romanian Academy, SCOSAAR, Romania)

Abstract

This article is an analysis of a “contractual paradox” which exists in the relation between an agent and a principal, in the presence of rent extraction. This case focuses exclusively on the State Owned Enterprise – SOE in Romania. If the model built by MC Jensen and WH Meckling examines the agency costs occurring in the presence of an information asymmetry and conflicts of interest between the agent and the principal, “the contractual paradox” that I consider in this article assumes that the “agent” and the “principal” cooperate to extract a rent/profit detrimental to a State Owned Enterprise and, in this case, the conflict of interest between the two disappears or subsists only as regards rent extraction and risks sharing. The “contractual paradox” refers to the coexistence of two agency contracts in the same State Owned Enterprise. The first is informal and the latter is formal. Both contracts are concluded between the same actors. The first transaction sets the rent extraction from the firm, while the second contract establishes the decision-making mechanism for the allocation of the firm’s resources. The “rent” is not treated in this study as a surplus, as in Ricardo-Marshall model, but as a profit.

Suggested Citation

  • Valentin M. Ionescu, 2016. "The Agency Problem in the Romanian State Owned Enterprise: The “Contractual Paradox”," Manager Journal, Faculty of Business and Administration, University of Bucharest, vol. 23(1), pages 106-115, May.
    • Handle: RePEc:but:manage:v:23:y:2016:i:1:p:106-115
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