Agency objectives, organizational change, and optimizing enforcement

Abstract

Institutional structure helps shape the nature of accountability.1 Literature in economics,2 political science,3 finance,4 and management5 all utilize principal–agent models. The basic of this approach is that there might be misalignment in incentives between a principal and the agent or agents that operate on their behalf that create a need to motivate agents. This is true both in the private sector6 and public sector.7 The principal–agent model helps to better frame the issues of antitrust enforcement, particularly focusing on the informational advantage of the agent (or staff) relative to the principal and how that necessitates much more deference, both because of the ex post efficiency of relying on the views of those with better information and because of the ex ante incentives to generate that information that will be gone if their views are ignored. The more important that underlying information is, the more deference is optimal for even greater values of any preference divergence between principal and agent. In the antitrust setting, this information is especially important both because inquiries are very fact intensive (general principles tell you very little on their own) and because the principal’s authority often relies on convincing courts, which cannot be done without the information generated by the agents.