{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}


individual_incentives_Presentation - Overview Individual...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Individual Incentives 2 Cornell University Overview 1. Slack a threat to sustainable advantage 2. Agency Relationships 3. Shirking 4. Contracts as a solution to shirking 5. Other solutions 3 Cornell University An agency relationship exists when one party (the principal) hires another party (the agent) to work on his/her behalf. Agency theory is the study of mechanisms that govern transactions between principals and agents. Agency Relationship 4 Cornell University Agency Theory Predicts Shirking Shirking—that agents will act to maximize their own self-interests, at the expense of the principal. Difficult to motivate agent to act on the behalf of the principal Cost to agent: effort of performing the action Cost to principal: observing the action is being properly carried out
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 5 Cornell University Lack of Observability The agent’s actions are not easily observable “Hidden information” or “Information Asymmetry” Agent often knows more than the principal about the job being done, e.g., relationship between effort and observed outcome Conditions That Make “Shirking” Possible 6 Cornell University Monitoring—supervision Costly, may require hiring of independent experts
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}