The principle aluminum agent theory, also agency theory (some authors separate both terms also), is an explanation beginning from the field of the social sciences and within the economic science a subsection of the new It offers a model, in order to explain an acting of humans in a hierarchy, but meets also general statements for the organization of contracts (explicit and implicit).

Many aspects of economic acting can be explained with the help of the principle aluminum agent theory; it ranks today apart from the transaction cost theory, the theory of the rights of disposal and the resources theory among the prominent explanation beginnings, which are discussed and used in the economic science.

History

The theory was discussed first in an essay by Michael Jensen and William Meckling in the year 1976. Their fundamentals decrease/go back to the theory of incomplete contracts, which justified among other things Ronald Coase.

Acceptance

The principle aluminum agent theory proceeds from rational restaurant subjects, which are reduced however in their decision making, approximately by asymmetrical information distribution. Humans have only incomplete information, if they are to judge an acting of others.

Furthermore the Opportunismus involved one subordinates. In the model there is a client (Prinzipal), who entrusts a contractor (agent) with a task. Each contracting party acts acceptance in accordance with in the own interest. Since the two however different goals can pursue, that can lead to conflicts.

Besides different risk inclinations are considered.

The Prinzipal uses the agent, in order to pursue own goals. It does not expect own goals from the agent that this uses itself completely for the completion of the order, thus its, but pursues the goals Prinzipals. The Prinzipal can recognize however the commitment and/or the qualities of its agent only with restrictions and sees - if at all - only the result of its efforts. In contrast to this the agent has an information projection/lead, since he can judge its own behavior regarding success better. It can use this information asymmetry to Ungunsten Prinzipals for its own purposes by appropriate acting (moral hazard and English shirking).

Arising problems

Overview

Different problem types can release problems in the relationship between Prinzipal and agent. Their removal lets agency costs develop.

Hidden characteristics

A first problem field concerns hidden characteristics (English hidden characteristics). Before conclusion of a contract (ex ante) the agent is relatively unknown to the Prinzipal. The Prinzipal could have selected the wrong applicant due to the missing knowledge of the characteristics as an agent. In order to escape that, the agent must send clear signals, which can be imitated by no worse competitor ("„Signaling "“e.g. by university diploma). Also the Prinzipal can repair this information deficit, by accomplishing a so-called "„Screening "“(e.g. Assessment center). A further solution of the problem results through "„Self Selection "“, by submitting several contracts to the agent, between which the agent select may. From the selection met by the agent the Prinzipal can conclude a conclusion over possible strategies of the agent.

Hidden acting and hidden information

With the problem types hidden acting (hidden action) and hidden information (hidden information) arise information asymmetries only to ex post office, thus after conclusion of a contract and during the fulfillment of a contract. Hidden Action meant that the agent has clearance, there the Prinzipal its actions (completely) to observe cannot. Hidden information is present against it if the Prinzipal the actions observe, whose quality cannot estimate however (e.g. due to expertise lacking).

In both cases is the problem that the Prinzipal cannot judge also ex post office, whether the resulting result was reached by qualified efforts of the agent, or whether (and/or like very much) the environmental conditions affected the result.

Hidden intention

Even if the Prinzipal possibilities has of observing an acting of the agent if no hidden acting or hidden information is thus present, can it in certain cases still to problems by the fact come that the Prinzipal ex ante the intentions of the agent does not know. This is called hidden intention (hidden intention).

At exchange goods only hidden characteristics (adverse selection) can be a problem, at contract goods against it represent hidden information and hiding acting a potenzielle danger.

Optimization with asymmetrical information

The principle aluminum agent theory goes from asymmetrical information (see asymmetrical information). Therefore a firstbest solution, which would be theoretically conceivable in case of symmetrical information, is not given. If one proceeds thus now from asymmetrical information and now if the lack of information are not corrected, then only a third-best solution can be achieved. A goal must be it therefore with given lack of information nevertheless at least the secondarybest solution to obtain. For this however agency costs must be applied.

Solution mechanisms

The problem of the principle aluminum agent theory can be solved by the following mechanisms:

• Bureaucratic control (hierarchy)
• Information systems (Controlling, time registration, milestones)
• Incentives (premiums)
• Unternehmenskultur
• Reputation
• Confidence

Effective particularly are systems, which give an incentive to the agent to the correct behavior. The goals of the Agents are adapted by a success-dependent remuneration to the goals Prinzipals.

A Unternehmenskultur can lead to the reduction of the agency costs. Thing in common in preferences, values, goals and authority minimizes co-ordination costs. This facilitates mutual coordination and Lernen.Die of aspects of efficiency dominates, it however by the homogeneous culture is undermined: long-term relations causes often with homogeneous cultures transaction specific investments, which increase dependence and permit it, the weaker ones to use and opportunistisch behave

Reputation can be interpreted as specific capital, which applies to defend it, to more possibilities for the Opportunismus to exist. A good Reputation lowers the incentive to the opportunistischen behavior and for this reason reduces it information and negotiation costs (ex ante).

Application

An example is the employer-employee relationship, in which the employee (agent) knows better, with which employment it for its employer (Prinzipal) works. The principle aluminum agent theory tries to find ways out of these conflicts, in order to maximize the economic total use of all involved ones. In the example of the employee the employer can supervise thus either the work of the employee or remunerate it success-dependently, in order to defuse the clash of interest of the contracting parties (interest alignment). A further alternative would be to threaten during violation of contract with the loss of the work. Building contractors are often bound over a debenture bond to the contractual agreements.

The problem of the principle aluminum agent theory is mostly considered with higher employee conditions, for example if shareholders adjust their company managers. Many regard the extremely high salaries of the company heads of the US companies as such "“market failure"”. Here it in addition, innumerable legal Verquickungen, which make possible only company structures, gives for example the possibility to the tax evasion in the foreign country, the patenting, chamber membership, federations, strict supervision and controls of banks, insurance or the licenses in the Pharmabereich.

Criticism

• Concentration on contractual ex-ante-perspective neglects problems, which can occur during the fulfillment of a contract
• Principle aluminum perspective is taken, possible opportunistisches behavior Prinzipals receives no attention (conceivable would be also here an endangerment of the agency relationship)
• Orientation at fixed goals: The goals of the contracting parties are first given and thus are only insufficiently shown the goal definition.
• Theory is based on view of in period and neglects thus long-term exchange interests, learning experiences and capabilities of sanctions of opportunistischem behavior.
• Operationalisierung of the agency costs, in particular the Residualkosten converted by maximally possible use and actual use Prinzipals, so far not successfully.

Result

The principle aluminum agent theory offers numerous refinements in relation to the reference model of the neoclassical theory. Neglected circumstances of the reality are now with included.

Nevertheless not all problems can be solved. They partly overlay also, so that difficulties exist to find suitable institutions for problem solution.

Besides it prepares problems in the reality to out-arrange incentive-compatible contracts whose preparation besides be still free should.

Literature

• Michael Jensen, William Meckling: Theory OF the firm: Managerial behavior, agency costs, and ownership structure, in: Journal OF Financial Economics, volume. 3 (1976), No. 4, P. 305--360.
• Kathleen Eisenhardt: Agency theory: And assessment on review, in: Academy OF management Review, volume. 14 (1989), No. 1, P. 57--74.

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