Balancing efficiency and fairness in an output-based agency relationship: an empirical investigation of the cognitive factors favouring a win–win situation

Abstract

PurposeThis research aims to investigate whether, in a principal–agent relationship, personal characteristics of the agent (seniority, locus of control (LOC), self-efficacy (SE), risk appetite (RA)) have an impact on their performance, on costs for the principal and on organizational justice (distributive justice (DJ) especially) in a sample of insurance brokers.Design/methodology/approachThe adopted structural equation modeling (SEM) analysis highlights the different role that personal characteristics play in affecting or moderating the agent’s performance. Moreover, the mediation analysis highlights the role played by gender and tenure in moderating the relationship between personal characteristics and work outcomes.FindingsThe findings of this study suggest that an agency relationship is not based only on rational choices made by the principal and agent in their own self-interest, but also by other idiosyncratic factors that influence the outcome of the relationship.Research limitations/implicationsIn order to better understand the agent’s behaviour, agency relationship investigation should consider other psychological variables in addition to the traditionally considered risk orientation, uncertainty and information asymmetry.Practical implicationsThis study gives specific insights into preventing undesired behaviours, e.g. organizational withdrawal, opportunism, high staff/employee turnover, as advocated by current literature.Originality/valueBy systemically investigating and analysing personal characteristics of the agent such as LOC, agent’s SE and RA, this study provides an original contribution to the knowledge on the determinants of costs and effectiveness in the agency relationship.