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Screening for Managerial Objectives

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  • Daniel G. Arce

Abstract

The debate between agency and stewardship theorists on the nature of managerial objectives in itself implies that a principal may be uninformed about managers' objectives. This article introduces a model of adverse selection in managerial types where classically opportunistic agents are contrasted with stewards who exhibit intrinsic preferences for the organization's success and experience betrayal (crowding out) when they are incentivized as if they were agents. The analysis characterizes stewardship inefficiencies not previously identified by stewardship theorists. This inefficiency is minimized via a menu of contracts that emphasizes the fixed component of pay for stewards. Moreover, steward‐run firms are more successful than agent‐run firms.

Suggested Citation

  • Daniel G. Arce, 2017. "Screening for Managerial Objectives," Southern Economic Journal, John Wiley & Sons, vol. 84(2), pages 442-455, October.
    • Handle: RePEc:wly:soecon:v:84:y:2017:i:2:p:442-455
    DOI: 10.1002/soej.12235
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    References listed on IDEAS

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