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Consumers and Agency Problems

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  • Canice Prendergast

    (University of Chicago and NBER)

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.

Suggested Citation

  • Canice Prendergast, 2002. "Consumers and Agency Problems," Economic Journal, Royal Economic Society, vol. 112(478), pages 34-51, March.
    • Handle: RePEc:ecj:econjl:v:112:y:2002:i:478:p:c34-c51
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    References listed on IDEAS

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    1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    2. 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 334-351, Summer.
    3. Guido Friebel & Michael Raith, 2004. "Abuse of Authority and Hierarchical Communication," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 224-244, Summer.
    4. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-472, June.
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    Cited by:

    1. Andrea Prat, 2005. "The Wrong Kind of Transparency," American Economic Review, American Economic Association, vol. 95(3), pages 862-877, June.
    2. repec:kap:reveho:v:16:y:2018:i:2:d:10.1007_s11150-016-9341-1 is not listed on IDEAS
    3. Klaus Abbink & Matthew Ellman, 2004. "The donor problem," Economics Working Papers 796, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.
    4. Pinghan Liang, 2013. "Exit and Voice: A Game-theoretic Analysis of Customer Complaint Management," Pacific Economic Review, Wiley Blackwell, vol. 18(2), pages 177-207, May.
    5. Liang, Pinghan, 2013. "Optimal delegation via a strategic intermediary," Games and Economic Behavior, Elsevier, vol. 82(C), pages 15-30.
    6. Canice Prendergast, 2016. "Bureaucratic Responses," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 183-215.
    7. Amegashie, J. Atsu, 2013. "Consumers' Complaints, the Nature of Corruption, and Social Welfare," MPRA Paper 47215, University Library of Munich, Germany.
    8. 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.
    9. Alex Barrachina & Víctor González-Chordá, 2016. "To report or not to report: Applying game theory to nursing error reporting," Working Papers 2016/14, Economics Department, Universitat Jaume I, Castellón (Spain).
    10. Amin, Mohammad, 2008. "Competition and demographics," Policy Research Working Paper Series 4514, The World Bank.

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