The Design of Institutions: An Agency Theory Perspective

Abstract

Agency theory provides a systematic analysis of bilateral or multilateral exchange of goods and services in the presence of various factors that bring into question the neoclassical assumption of costless transactions. These factors include most prominently various forms of asymmetric information, wherein one party to an exchange has better information about the consequences of such an exchange than does another. The goal of agency theory is to identify efficient organizational responses to these complicating factors; the intent of this chapter is to survey some of the principle results from this literature and view these as fundamental building blocks in the efficient design of institutions.

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