Multiple Principals Research Articles

Performance of municipally owned corporations: Determinants and mechanisms

AbstractPractitioners often expect service delivery by municipally owned corporations (MOCs) to differ substantially from delivery by municipal bureaucracy. However, research into the circumstances under which municipal corporatization is effective is scarce. We investigate determinants of MOCs’ performance based on a questionnaire sent to all Dutch MOCs, finding no evidence that many expected predictors of performance matter for performance. Key factors driving MOCs’ performance relate to size, resource access, and the interaction between their multiple principals. We suggest that in studying local corporatization, researchers should look less at traditional principal–agent conflict and more at intermunicipal coordination.

State-owned enterprises’ corporate governance: Evidence from a Portuguese company

This paper analyses state-owned enterprises’ (SOEs) corporate governance, addressing whether there are differences between these and private enterprises that make it necessary to formulate a specific corporate governance theory for the former. This will be achieved through a case study based on Carris company, mitigating the lack of empirical knowledge in this field and taking a step forward by clearly proving what it is suggested by the literature: SOEs’ governance particularities actually influence their day-to-day business and financial viability. That helps to highlight the urgency to apply adequate corporate governance techniques to SOEs, more aligned with their characteristics. SOEs have a different legal status, more volatile operating goals, soft budget constraints, lack of public service contracts (and consequent mismatch of the corresponding compensatory allowances due for the public service provided), and different criteria for professional appointment and selection. More importantly, they suffer from multiple principals’ phenomenon: multiple principals, multiple problems. It is, therefore, recommended some changes regarding their corporate governance, such as the incorporation of the comply-or-explain principle; introduction of a code of best practices in the public managers’ appointment process; and contractual arrangements regarding the public service provided, with the multiannual allocation of the corresponding compensatory allowances.

The effect of steering by multiple principals on national agencies' compliance with European Union laws

National agencies that implement European Union legislation engage with multiple principals: the national government, the European Commission and EU agencies. In this article we have developed and tested a tool that enables examination of the effect of steering by multiple principals on an agency's compliance with EU laws. On the basis of multiple principal-agent theory we have developed an explanatory typology to predict an agency's level of compliance by configuring the principals' and agency's preferences and the steering mechanisms resulting from the convergence or divergence in preferences. The typology is tested in an embedded case study of the implementation of the Port State Control Directive in the Netherlands. The results show that the typology is able to explain two of the three cases. To enhance the explanatory power of the typology, we suggest including the strength of steering instruments used by principals as additional factor in the typology.

The effect of steering by multiple principals on national agencies' compliance with European Union laws

National agencies that implement European Union legislation engage with multiple principals: the national government, the European Commission and EU agencies. In this article we have developed and tested a tool that enables examination of the effect of steering by multiple principals on an agency's compliance with EU laws. On the basis of multiple principal-agent theory we have developed an explanatory typology to predict an agency's level of compliance by configuring the principals' and agency's preferences and the steering mechanisms resulting from the convergence or divergence in preferences. The typology is tested in an embedded case study of the implementation of the Port State Control Directive in the Netherlands. The results show that the typology is able to explain two of the three cases. To enhance the explanatory power of the typology, we suggest including the strength of steering instruments used by principals as additional factor in the typology.

Principals and transceivers: regional authorities in EU trade negotiations

ABSTRACT The EU conducts its external trade policy under close scrutiny by member-states. Yet, what about the role of regional authorities in federal states? To answer, we look at the principal-agent chain of delegation and explore to which extent regions with stakes and competencies in the matter exert control over EU policies. We distinguish three ideal-type roles regions can perform: principals in their own right, members of collective principals, and introduce the new concept of ‘transceivers’. A region can perform the role of principal with formal competencies, as does Flanders, which as one of multiple principals can withhold a Belgian decision. A region can also be one of a collective group of principals, as is the case for the region Hesse. Regions can finally perform the role of a ‘transceiver’ of information from policy-makers to constituencies (and vice versa), akin to the role of endorser, without formal framework for involvement – as does Scotland. Since regions and states alike depend on private sector information, two conclusions prevail. First, despite formal competencies, regions that are members of collective principals struggle becoming the sole interlocutor for the private sector. Second, despite lacking competencies, transceiver-regions are crucial interlocutors complementing member-state control over EU trade policy.

Information Asymmetry among Multiple Principals and Inefficiency within the Organization

We develop a theoretical framework to investigate the effect of information asymmetry between the two principals on the common agent’s incentives to provide an effort. We find that the agent’s effort to the poorly-informed (PI) principal is optimal, while his effort to the well-informed (WI) principal is not. Given that the valuable resource, i.e., the agent’s effort, should flow into the person who has higher ability, our results imply that the asymmetric information between two principals generates an efficiency loss within the organization. In addition, we examine whether this inefficiency is attenuated by changes of the relative weight of the agent’s profit set to each principal. The result shows that unless the WI principal solely determines the agent’s profit, the efficiency loss within the organization does not disappear. This finding corroborates that as long as the PI principal exists within the organization, the inefficiency might be inevitable. Our research not only provides new insights to the agency literatures but also offers useful information regarding the efficiency of organizational structure.

Multiple principals, multiple problems: Implications for effective governance and a research agenda for joint service delivery

The multiple principal problem refers to multiple collective action problems that organizations face when they must balance (competing) interests of multiple stakeholders under joint service delivery. It negatively affects different types of organization, yet we know little about how organizations (can) mitigate it. We expand a framework based on principal–agent theory, review the literature, and consider implications for effective governance of joint service delivery in the public sector. We observe that joint service delivery can lead to free‐riding and duplication in monitoring, lobbying by principals, and increased autonomy for agents, leading to inefficiency. We build a research agenda and tentatively suggest, based on the literature, that an interface approach, where an elected unitary actor is placed in a middle tier between politics and service delivery, might best mitigate the multiple principal problem, which is currently not dealt with effectively in public management.

Serving many masters: an agent and his principals

While there is vast literature on principal-agent service contracts in which a principal pools the service capacities of multiple agents for economy of scale, here we focus on the case that exists in practice of an agent pooling multiple principals. Since it is reasonable to presume that an agent of good standing attracts multiple contract offers, his main strategic decision is to select his principals. It is generally known that a principal can extract all economic surplus from a risk-neutral agent while the agent breaks even. However, this is not the case for an agent contracting multiple principals while accounting for their interdependent failure characteristics. In this paper we describe a methodology that enables an agent to calculate the value of each potential principal and therefore to contract a Pareto optimal subset of principals in a market where neither principals’ nor agents’ collusion is allowed. Unfortunately, computational intractability of first order analysis forces us to rely on a Monte Carlo simulation to understand the agent’s choice of the principals. The computation of each principal’s contribution to the agent’s welfare is enabled by a specific cooperative game of independent interest. We show that under certain conditions the agent can do better than break-even and can realize profits convexly increasing in the cardinality of the contracted principals. Our findings not only equip agents with a mathematical instrument for assessment of service contract’s financial viability but also offer agents a holistic perspective for screening principals before accepting contract offers.

Of Principal(s') Interest? A Disaggregated, Multiple Principals' Approach to Commission Discretion

AbstractHow much discretion does the Commission enjoy in the European Union? To address this question, we draw on principal–agent theory and propose ‘interest in a decision’ by principals as a proxy for agent discretion. This has three advantages over existing approaches. First, it overcomes the high‐conflict bias of case studies. Second, it accounts for the phenomenon of rational anticipation. Third, it allows for a more fine‐grained measurement than analyses of the act of delegation. Empirically, we disaggregate the Transatlantic Trade and Investment Partnership (TTIP) into 27 chapters and account for multiple principals. We use surveys and interviews with Commission negotiators, which we triangulate with publicly available data sources. Our findings paint a picture of a Commission that is constrained rather tightly. While the Council follows all chapters and acts as a ‘safety net’, citizens and the European Parliament act as fire alarms and focus on selected, often overlapping, chapters.

The Schizophrenic Board Secretary-Flip-flopper Intermediary Agent between Multiple Principals

Agency theory is amongst the most fundamental and influential theories in variety of disciplines. To date, the traditional concept of principal-agent theorization has been extended into principal-p...

The politics of special purpose trust funds

Over the last decades, bilateral donors of foreign aid have increased their use of special purpose trust funds to provide earmarked aid to multilateral organizations. This paper investigates the incentives and consequences underlying this recent shift toward country‐ or theme‐specific funding and away from bilateral and multilateral aid. We propose a game‐theoretic model with multiple principals and a multilateral agent to study how the interaction between donor preferences, voter concerns in the donor country, the voting rules at the multilateral organization, and the presence of special purpose trust funds influences aid allocation. We show that multilateral organizations with majority rules are more likely to receive discretion and thus voluntary core contributions than those with unanimity requirements and that the possibility of earmarking multilateral aid decreases donors’ contributions to the multilateral's discretionary core budget and the amount of bilateral aid. In contrast to much of the literature dealing with issues of delegation and bi‐ and multilateral aid, our model suggests non‐monotonic effects of preference heterogeneity on the choice of aid channel for some parameter combinations when contributions to special purpose trust funds are an option.

When Principals Conflict: Stakeholder Power, Executive Decision-Making, and the Manipulation of Pension Assumptions

Whereas the dominant theoretical perspective in corporate governance research attends to the conflicting interests between shareholders and executives, in practice executives must frequently adjudicate between the demands of multiple principals with conflicting interests. To investigate how executives cope with these conflicts, I examine how much firms claim they will earn on the assets in their defined benefit (DB) pension plans. In a DB arrangement, participating employees forgo wages in the present in order to receive post-retirement income and they rely on executives to properly fund and manage plan assets for future payout. Executives, however, can act opportunistically by increasing the amount they expect the firm to earn on plan assets, effectively lowering their pension expenses and boosting the firm’s earnings. Whether executives do so, I argue, is determined in part by the power and interests of employees and shareholders as well as the decision-making schemas of the CEO. Through a detailed analysis, I show that equity ownership by bank trusts and public pension funds and the presence of a CEO with a background in finance are associated with higher expected rates, while higher rates of firm unionization are associated with lower expected rates of return on such assets.

When politics prevails: Parties, elections and loyalty in the European Parliament

AbstractIn many political systems, legislators serve multiple principals who compete for their loyalty in legislative votes. This article explores the political conditions under which legislators choose between their competing principals in multilevel systems, with a focus on how election proximity shapes legislative behaviour across democratic arenas. Empirically, the effect of electoral cycles on national party delegations’ ‘collective disloyalty’ with their political groups in the European Parliament (EP) is analysed. It is argued that election proximity changes the time horizons, political incentives and risk perceptions of both delegations and their principals, ‘punctuating’ cost‐benefit calculations around defection as well as around controlling, sanctioning and accommodating. Under the shadow of elections, national delegations’ collective disloyalty with their transnational groups should, therefore, increase. Using a new dataset with roll‐call votes cast under legislative codecision by delegations between July 1999 and July 2014, the article shows that the proximity of planned national and European elections drives up disloyalty in the EP, particularly by delegations from member states with party‐centred electoral rules. The results also support a ‘politicisation’ effect: overall, delegations become more loyal over time, but the impact of election proximity as a driver of disloyalty is strongest in the latest parliament analysed (i.e., 2009–2014). Furthermore, disloyalty is more likely in votes on contested and salient legislation, and under conditions of Euroscepticism; by contrast, disloyalty is less likely in votes on codification files, when a delegation holds the rapporteurship and when the national party participates in government. The analysis sheds new light on electoral politics as a determinant of legislative choice under competing principals, and on the conditions under which politics ‘travels’ across democratic arenas in the European Union's multilevel polity.

Monitoring practices in Brazilian credit unions: a study on monitoring and accounting indicators

Monitoring helps in incentive mechanisms and punishment because it allows us to observe the behavior and give credibility to the system because the agent understands that monitoring is to redevelop or punish their attitudes. It requires the development of a monitoring framework that recognizes the existence of heterogeneity of members and that allows the survival of the cooperative organization. In addition, a monitoring economic results and to provide services and control by multiple principals who are cooperative members is necessary. Therefore, monitoring reduces moral hazard and thus increases the efficiency of the organization. It is critical to monitor the economic results and to provide services and control by multiple principals who are members of the cooperative. This therefore cooperatives have economic objectives for the provision of services to their members. The research question is: higher compliance monitoring practices indicated by the Central Bank (BACEN) influences the financial statements as assets, revenues and surplus? Thus, the aim of this work is to identify if certain accounting information is influenced by greater adherence to monitoring practices. This research aims to contribute to the understanding of the relationship between monitoring practices, which possibly implies the reduction of agency costs and consequently the efficiency of cooperative organizations, and accounting information as an asset, revenue and surplus. After the analysis of the mean difference test, we can see that the higher compliance monitoring practices indicated by the Central Bank can influence a higher asset value, higher value of revenue and a higher surplus in credit unions. Not being able to infer that a greater adherence monitoring practices directly influence asset, revenue and surplus or those variables that influence higher compliance monitoring practices have become a problem of endogeneity. Can only infer that there is an influence between greater adherence practices and monitoring these variables.

More Than 'Who Pays': Agency Theory, Multiple Principals, and Government Regulation

Substantial theoretical and empirical work has shown how various forms of governance, including incentives, can help mitigate agency conflicts. However simple agency logic is deeply complicated when a particular agent has several principals with conflicting interests and preferences. In this paper, we examine the implications of these multiple conflicting principals and the behavior of an agent, as well as the under-explored effects of government regulation on the principal- agent relationship. We do so in a particularly rich empirical context, namely, the behavior of U.S. bond rating agencies before, during, and after the financial crisis of 2008. We show that these rating agencies had multiple principal relationships and that conflicts among these principals led these agencies to favor some principals–namely their paying customers–over others. However we also show that problems arose not just from “who pays’ but also from well-intended government regulations that reduced market competition. Our findings...

Multiple Principals and Legislative Cohesion

In many systems, legislators find themselves accountable to multiple principals. This article seeks to further answer how legislators decide between their principals and what factors condition legislators to choose one over the other. We argue that electoral uncertainty, operationalized as electoral volatility, pushes legislators towards the principal that has the greatest influence over their re‐election. Using European Parliament electoral results and roll‐call data from the second to the sixth European Parliaments (1984–2009), we show that increases in electoral volatility decreased European group cohesion and pushed legislators to side more with the positions of their national parties over their European group when the two disagreed.

Multiple Collective Principals and Legislative Cohesion

In many systems, legislators find themselves accountable to multiple, collective principals. This article seeks to answer to question‐how do legislators decide between collective principals and what conditions force legislators to chose one over the other. We argue that electoral uncertainty, operationalized as electoral volatility, pushes legislators towards the collective principal that has the greatest influence over their reelection. Using European Union electoral results and roll-call data from the 2nd6th European Parliaments, we show that increases in electoral volatility undermine parliamentary group cohesion and push legislators to side with the positions of their national parties over their parliamentary group when the two disagree.

NATO contracting in Afghanistan: the problem of principal-agent networks

Private military and security companies (PMSCs) play a growing role in international military and peacekeeping operations. Very little is known, however, about the fact that not only the United States relies extensively on contractors, but so do international organizations such as the North Atlantic Treaty Organization (NATO). This article examines NATO's collaboration with PMSCs during its leadership of the International Security Assistance Force in Afghanistan (ISAF, 2001-2014). It argues that NATO's use of international prime contractors and holding PMSCs responsible for their own security contributed to the creation of a complex network of contractors and subcontractors with detrimental effects for control and accountability. In particular, this article focuses on the proliferation of local Armed Private Security Companies (APSCs) which were accused of a wide range of humanitarian and human rights abuses. Drawing on principal-agent theory, this article seeks to explain why NATO appeared unable to stop the 'culture of impunity' among these firms. It shows that multiple principals and long principal-agent chains undermined NATO oversight over armed security guards. In addition, some principals and agents avoided accountability for APSC misconduct through three strategies: blame-shifting, back-scratching and morphing. NATO contracting practices, thus, had serious negative implications for the security of the civilian population and the ability of ISAF to establish lasting peace in Afghanistan. [ABSTRACT FROM AUTHOR]

Handedness, Earnings, Ability and Personality. Evidence from the Lab.

Evidence showing that on average left-handed (L), who are 10% in a population, tend to earn less than others is solely based on survey data. This paper is the first to test the relationship between handedness and earnings experimentally and also to assess whether the mechanism underlying it is predominantly cognitive or psychological. Data on 432 undergraduate students show that L do not obtain significantly different payoffs, a proxy for earnings, in a stylised labour market with multiple principals and agents. Similarly, scores in the Cognitive Reflection Test are not significantly different. Data on personality, measured using the Big Five test, show, instead, that L are significantly more agreeable and L females more extroverted. In addition, earnings significantly vary with personality only for L, increasing with extraversion and decreasing with neuroticism. Overall, our results fail to reject the null hypothesis that earnings do not differ by handedness and suggest differences in personality as a novel mechanism to rationalise L’s behaviour.

Relative Pay for Non-Relative Performance: Keeping Up with the Joneses with Optimal Contracts

We consider a multi-agent contracting setting when agents derive utility based in part on their pay relative to their peers. Because agents' productivity is affected by common as well as idiosyncratic shocks, it is optimal to base pay on the agent's performance relative to a benchmark of his peers. But when agents have keeping up with the Joneses (KUJ) preferences and care about how their pay compares to that of others, relative performance evaluation also increases agents' perceived risk. We show that when a single principal (or social planner) can commit to a public contract, the optimal contract hedges the risk of the agent's relative wage without sacrificing efficiency. While output is unchanged, however, hedging makes the contracts appear inefficient in the sense that performance is inadequately benchmarked. We also show that when there are multiple principals, or the principal is unable to commit, efficiency is undermined. In particular, KUJ effects induce agents to be more productive, but average wages increase even more, reducing firm profits. We also show that if the principal cannot commit not to privately renegotiate contracts, then wages and effort are increased when KUJ effects are weak, but are reduced, enhancing efficiency, when KUJ effects are sufficiently strong. Finally, public disclosure of contracts across firms can cause output to collapse.