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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)

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
    DOI: 10.1111/j.1465-7295.2007.00047.x
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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. Danny Miller & Xiaowei Xu, 2019. "MBA CEOs, Short-Term Management and Performance," Journal of Business Ethics, Springer, vol. 154(2), pages 285-300, January.
    6. Dr.Muganda Munir Manini & Dr.Umulkher Ali Abdillahi, 2023. "Does the Internal Control Environment Drive the Performance of Cooperatives? A PLS-SEM Perspective," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(7), pages 721-745, July.
    7. 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.
    8. 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.
    9. Daniel G. Arce, 2018. "On the cooperative and competitive aspects of strategic monitoring," Rationality and Society, , vol. 30(3), pages 377-390, August.
    10. Fabrizio Ferraro & Jeffrey Pfeffer & Robert I. Sutton, 2009. "How and Why Theories Matter: A Comment on Felin and Foss (2009)," Organization Science, INFORMS, vol. 20(3), pages 669-675, June.

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    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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