Warning: Use of undefined constant referer - assumed 'referer' (this will throw an Error in a future version of PHP) in /usr/home/essaywo/public_html/essays on line 102

Warning: Use of undefined constant host - assumed 'host' (this will throw an Error in a future version of PHP) in /usr/home/essaywo/public_html/essays on line 105

Warning: Cannot modify header information - headers already sent by (output started at /usr/home/essaywo/public_html/essays:102) in /usr/home/essaywo/public_html/essays on line 106

Warning: Cannot modify header information - headers already sent by (output started at /usr/home/essaywo/public_html/essays:102) in /usr/home/essaywo/public_html/essays on line 109
The Agency Theory and Concepts - Online Term Paper

The Agency Theory and Concepts

The Agency Theory

The agency theory is suggested to be a derivative of the research on risk sharing conducted by economists. According to the theory, every firm has a principal and an agent. The assumptions of are that agents are motivated by self-interest, are rational actors, and are averse to taking risks. Therefore, principals can motivate agents by controlling their incentives (Gomez-Mejia & Balkin, 1992).
A dilemma occurs in the theory, when a principal is unable to adequately monitor or assess an agent' s behavior (Lambert et al., 1993). This situation results when the agent's task is less programmable when accomplishing the task entails risks, or when the goals of the ...

Want to read the rest of this paper?
Join Essayworld today to view this entire essay
and over 50,000 other term papers

choose between fixed and variable pay by determining how easy it is to monitor job performance (behaviors). However, considering the interrelationship between the agent and the principal it becomes problematic to organize the relationship due to the moral hazards involved (Jensen and Meckling, 1976).One factor related to the ability to monitor performance is task programmability.
According to agency theory, task programmability will be positively related to the use of behavior-based compensation contracts (fixed salary) and negatively related to the use of outcome- based contracts (variable pay). This is because programmable tasks allow the principals (in this case, organizations) to specify the behaviors that the agents (in this case, managers) need to perform.
Gomez-Mejia and Balkin (1992) used the example of work performed by university faculty members to suggest that when work behaviors are inherently nonprogrammable, an organization is forced to monitor behavior by ...

Get instant access to over 50,000 essays.
Write better papers. Get better grades.

Already a member? Login

CITE THIS PAGE:

APA
MLA
Chicago
Turabian

The Agency Theory and Concepts. (2015, September 12). Retrieved December 23, 2024, from http://www.essayworld.com/essays/The-Agency-Theory-and-Concepts/104975

"The Agency Theory and Concepts." Essayworld.com. Essayworld.com, 12 Sep. 2015. Web. 23 Dec. 2024. <http://www.essayworld.com/essays/The-Agency-Theory-and-Concepts/104975>

"The Agency Theory and Concepts." Essayworld.com. September 12, 2015. Accessed December 23, 2024. http://www.essayworld.com/essays/The-Agency-Theory-and-Concepts/104975.

JOIN NOW

Join today and get instant access to this and 50,000+ other essays

PAPER DETAILS

Added: 9/12/2015 04:16:43 AM
Category: Economics
Type: Premium Paper
Words: 637
Pages: 3

Save |

Report

SHARE THIS PAPER

SAVED ESSAYS

Save and find your favorite essays easier