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Generally, the principal-agent problem can be described as delegated decisionmaking — a situation in which one economic entity (the principal) enters into an agreement (the contract) with another entity (the agent) in expectation that the agent will make decisions in the interests of the principal.

Ever since it was first for mulated[2] this microeconomic theory has been developing apace.[3] However, the principal-agent principle is widely applied in other economic and non-economic areas as well.[4]

Our approach stays strictly on the microeconomic level in its narrower sense. We discuss only those common activities of the principal and the agent which are not unrepeated trade. We also restrict our analysis to the case of just one principal. That way we avoid the problem of conflicting interests of different principals — if the agent has more than one principal, each with different interests and a different relation towards risk, then even if he wants to act in the best interests of all of those principals, this is not possible to achieve.

The principal-agent microeconomic problem could refer, for example, to the relation between:

• owner and manager,

• employer and employee,

• creditor and debtor,

• firms where one firm delegates work to another (as a subcontractor or as part of a collaborative effort),

• landowner and tenant,

• litigant and counsellor,

• investor and portfolio manager,

• managing centre and subsidiary division within one company or in a centrally planned economy,

• banking supervisor and regulated bank,

• risk-averse insuree and risk-neutral insurer,

• customer (for example of a retail chain) and supplier.

  • [1] Hlaváček, J., Hlaváček, M.: “Principal-Agent” Problem in the Context of the Economic Survival. Acta Economica Pragensia 14, 3(2006): 18–33.
  • [2] Ross, A.: The Economic Theory of Agency: The Principal's Problems. American Economic Review 63, 2(1973): 134–39, or Jensen, M. C., Meckling, W. H.: Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3, 4(1976): 305–60, or Frait, J.: Morální hazard a výstup z bankovního sektoru. Finance a úvěr 52, 3(2002): 102–4.

  • [3] For example, Bolton, P., Dewatripont, M.: Contact Theory. Cambridge, MA: MIT Press, 2005, or Gintis, H: Game Theory Evolving: A Problem-Centered Introduction to Modeling Strategic Interaction. Princeton: Princeton University Press, 2000, or Vives, X., ed.: Corporate Governance: Theoretical and Empirical Perspectives. Cambridge: Cambridge University Press, 2000, or Denis, D. K., McConnell, J. J.: International Corporate Governance. Journal of Financial and Quantitative Analysis 38, 1(2003): 1–36, or Janda, K.: Credit Guarantees in a Credit Market with Adverse Selection. Prague Economic Papers 12, 4(2003): 331–49.v

  • [4] For example in macroeconomics and economic policy (Epstein, G. A., Gintis, H. M., eds.: Macroeconomic Policy after the Conservative Era. Studies in Investment, Saving and Finance. Cambridge: Cambridge University Press, 1995), in institutional economics (Furubotn, E. G., Richter, R.: Institutions and Economic Theory. The Contribution of the New Institutional Economics. Ann Arbor: University of Michigan Press, 1997, or Spulber, D. F.: Market Microstructure: Intermediaries and the Theory of the Firm. Cambridge: Cambridge University Press, 1999), in corporate governance theory (Mejstřík, M.: Corporate Governance, Ownership Concentration and FDI in CR. In Corporate Restructuring and Governance in Transition Countries, edited by B. Dallago and I. Iwasaki, 65–90. London: Palgrave, 2007), in the political sciences (Laffont, J. J.: Incentives and Political Economy. Oxford: Oxford University Press, 2000, or Arrow, K. J. et al., eds.: Barriers to Conflict Resolution. New York: Norton, 1995), in sociology (Cook, K. S., ed.: Trust in Society. New York: Russell Sage Foundation, 2001) or in the theory of law (Adler, M. D., Posner, E. A., eds.: Cost-Benefit Analysis: Legal, Economic, and Philosophical Perspectives. Chicago: University of Chicago Press, 2001, or Polinsky, A. M., Shavell, S.: The Economic Theory of Public Enforcement of Law. Journal of Economic Literature 38, 1(2000): 45–76).

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