Principal-agent Approach Research Articles

Grappling with the “real politics” of systemic corruption: Theoretical debates versus “real‐world” functions

A growing body of research argues that anticorruption efforts fail because of a flawed theoretical foundation, where collective action theory is said to be a better lens for understanding corruption than the dominant principal–agent theory. We unpack this critique and advance several new arguments. First, the application of collective action theory to the issue of corruption has been, thus far, incomplete. Second, a collective action theory‐based approach to corruption is in fact complementary to a principal–agent approach, rather than contradictory as is claimed. Third, applications of both theories have failed to recognize that corruption persists because it functions to provide solutions to problems. We conclude by arguing that anticorruption effectiveness is difficult to achieve because it requires insights from all three perspectives—principal–agent theory, collective action theory, and corruption as serving functions—which allows us to better understand how to harness the political will needed to fight corruption.

Organizational policy and corruption: the case of the government agencies

Using the principal-agent approach, a theoretical model is developed, in which dishonest government officers lobby authorities (in the form of a corrupted political contribution) for getting some advantage over honest officers. The government agency authority should maximize the welfare of the civil service officers by distributing an economic compensation granted by a central government through the use of an institutional policy. The contribution scheme promotes a relevant truthful equilibrium. A larger institutional level favors honest people; a smaller institutional level favors dishonest people and the bribe they offer. This result has two opposite implications. If government is only an efficient authority, the optimal institutional policy will grant the same amount of economic compensation to all officers. On the other hand, if authority is assuming a moral role against corruption, then the government will be inclined to set the strictest institutional policy.

Editorial

This ‘turning point’ highlights stewardship theory as an underused but highly applicable behavioural organisational theory to explain and enhance sustainable supply chain management practices. By partly rejecting well accepted agency forms of governance mechanisms, the recommendation to investigate stewardship theory as a way to explain our observations in sustainable operations is encouraged. Future research demonstrating and supporting the use of angel agents will be both provocative and engaging by evidencing the removal of the control mechanisms many see as a necessity in principal-agent relationships. For academics and practioners, adapting theory for modern contexts such as sustainable development, is an important requirement to tackle new challenges. Identifying examples of stewardship theory in buyer-supplier exchanges, which are typically emblematic of a principal-agent approach, is under researched but conspicuous enough to be the subject of empirical and theoretical studies.

Succession in Horticultural Family Businesses: Determining Factors

Succession is a pervasive topic in recent family business research and receives attention from a wide range of research directions. Strategic and principal-agent approaches discuss the subject from an organizational point of view; gender research takes a sociological viewpoint. The study assesses the perspectives of those involved in the succession process through a qualitative research approach. Based on in-depth interviews, a comparative analysis leads to the development of a substantial grounded theory of succession in horticultural family businesses. Results show a range of determining factors, including socialization of the potential successor, affecting the generation spanning succession process.

The Politics of Delegation in European Banking Union: Building the ECB Supervisory Oversight Capacity

The nature and scope of the European Central Banks’s (‘ECB’) oversight mandate over the supervision of smaller and medium-sized banks by national supervisors has been one of the most debated aspects of the newly created European Banking Union. In particular, the issue whether the ECB should influence already established national supervisory practises and standards was not immediately straightforward. This paper applies the Principal-Agent (‘PA’) approach to explore the extent of the ECB supranational agency governing the supervisory oversight policies in the Single Supervisory Mechanism (‘SSM’). Notably, one of the important features of the SSM institutional design is the contractual incompleteness of supranational delegation. The ECB has been granted discretion to fill in the agency contract concluded with the Member States. A brief analysis of the practical operationalization of the ECB oversight role suggests that the ECB could exploit this contract condition to pursue own policy goals (agency hold-up problem) and situate itself in “bureaucratic drift” vis-à-vis the Member-State principals. However, under slightly relaxed Principal-Agent assumptions which allow policy learning to take place between the principal and agent, it is also possible that the ECB managed to influence the Member States’ stance, and, in doing so, exercised effective bureaucratic entrepreneurship.

English

The export of grain from Western Australia depends on a grain supply network that takes grain from farms to port through Cooperative Bulk Handling (CBH) receival and storage sites. The ability of the network to deliver pest free grain to port and ship depends on the quality of grain delivered by farmers and the efficacy of phosphine based fumigation in controlling stored grain pests. Unfortunately, over time, common stored grain pests have developed resistance to phosphine. There is some evidence that phosphine resistance, develops on farm due to inadequate biosecurity management. This paper considers the design of farm biosecurity contracts using a principal agent approach. An optimizing non-linear programming model with different effort levels of Cooperative Bulk Handling (principal) and farmer (agent) is developed to determine: (i) whether the farmer’s effort level affect the CBH’s profit function, and (ii) whether increasing monitoring effort by the CBH has an impact on farmer’s performance on farm. Results show that; (i) the optimal effort level of farmer is higher for perfect information assumption than moral hazard one. Meanwhile, (ii) under moral hazard assumption, when Bulk Handler is engaged in intensive monitoring level, the farmer is engaged in a higher level of effort. Price premium represents the incentive for farmers, while cost-reduction represents the incentive for Grain Bulk Handler. Key words: Principal-agent model, biosecurity contracts, asymmetric information, stored grain, effort levels, farmer, grain bulk handler.

When legislators choose not to decide: Abstentions in the European Parliament

Why do legislators choose to vote ‘Abstain’ instead of ‘Yea’ or ‘Nay’? Is it because they shy away from taking sides when facing competing demands? We address this question by studying roll-call vote data on the sixth European Parliament. In line with our principal–agent approach, we find that Members of the European Parliament are prone to strategically abstain when torn between different positions of their national party, their transnational party group, and their country’s minister. Abstentions are thus not random but strategic and ignoring them may bias the findings of legislative studies.

Design of port regulation mechanisms for multilayer governance: A shanghai case study

This article studies port dual regulation mechanisms in which a central government and a local government act either simultaneously or sequentially. Optimal tariffs, port capacities and port efficiency levels under these dual regulation schemes are determined following a principal-agent approach. The theoretical research can assist the thinking process that prevails during the shaping of regulatory systems in the port sector. Moreover, the theoretical results obtained are applied to a case study involving the container terminals in the Port of Shanghai in China. Sensitivity analysis and comparative studies show that (i) dual regulation causes the highest distortion when the central government and the local government act sequentially, (ii) the port operator obtains the highest profit when the central- and local government act sequentially, (iii) the distortion becomes worse when the port operator’s cost increases, the weight of the port operator’s profit in the government’s objectives decreases, or the sensitivity of port demand with respect to its price increases.

Comment on “Explaining the Standard of Proof in Criminal Law: A New Insight”

Comment on “Explaining the Standard of Proof in Criminal Law: A New Insight”

The Westminster Model and the “Indivisibility of the Political and Administrative Elite”: A Convenient Myth Whose Time Is Up?

This article argues that the principle of indivisibility in the relationship between political and administrative elites acted as a central convention of the Westminster system for much of the twentieth century. It explores how in more recent decades this principle has been challenged by the shift to a principal–agent approach. It considers the extent to which this shift diminishes the traditional Westminster model's understanding of the minister–civil servant relationship as one based on a symbiotic interdependent partnership. In its place has emerged a more universal command and control relationship that is seen as necessary to meet the demands of modern accountability and transparency. Such a change has fundamentally altered a long‐established power‐bargain between ministers and civil servants and undermined a core tenet of the Westminster model.

Taxation and Incentives to Innovate: A Principal-Agent Approach

A principal-agent model with multiple job tasks is used to explore the effects of different tax schemes on innovation in a pure knowledge economy with bootleg innovation. Corporate taxes and labor income taxes can affect both the firm owner's and the employee's incentives to commit to innovative tasks, when the former compensates the latter (a manager or a technical or R&D employee) by means of variable pay tied to measures of the company's success. Results point to complementary roles between patent-box tax incentives and reductions in the tax rate levied on profit-sharing schemes, and they show that a revenue-neutral reform substituting the latter for the former is always possible. The complementarity holds, albeit with different relative importance for the two tax incentives, also with nondeductible labor costs and with a stochastic innovation value coupled with a risk-averse agent.

Heterogeneous network bandwidth management scheme based on the principal-agent game model

In order to provide more comprehensive network services, a concept of integrated heterogeneous network system was introduced. Until now, lots of researchers have focused on how to efficiently integrate different types of wireless and mobile networks. To exploit the heterogeneous network system operation, an important issue is how to properly manage the network bandwidth. In this study, a new bandwidth management scheme has been proposed by employing the principal-agent game model. Among heterogeneous networks, we have analyzed the asymmetric information situation and developed an effective bandwidth allocation algorithm. Under diverse network condition changes, our principal-agent game approach is essential to provide a suitable tradeoff between conflicting requirements. Simulation results demonstrate that the proposed scheme can obtain a better network performance and bandwidth efficiency than other existing schemes.

Social control of public expenditures in a multilevel principal-agent approach

ABSTRACTThis study enhances the principal-agent model by incorporating a multilevel perspective and differences among agency situations. A theoretical discussion is developed using a proposed intersection of methodological focuses and a descriptive-exemplificative hypothetical analysis. The analysis is applied to public expenditure social control in representative democracies, and as a result, a principal-agent model unfolds that incorporates a decision-making perspective and focuses on formulation, negotiation, articulation, and implementation competencies. Thus, it is possible to incorporate elements into the principal-agent model to make it more permeable to individual, group, and societal idiosyncrasies with respect to public expenditure social control.

Icelandic media firms viewed from the perspective of agency theory

It has previously been proposed that agency theory (principal-agent approach) might be applied to media organizations to understand how media owners make sure that their companies are managed according to their wishes. Thus, the purpose of the present study was to investigate: a) whether agency theory is applicable to three Icelandic media companies, and b) how the theory manifests itself in the management practices of these companies. The media companies that were examined were: the Icelandic National Broadcasting Service (RÚV ohf.), 365 miðlar ehf. and Árvakur hf. Qualitative interviews were conducted with three editors-in-chief, two CEOs/publishers, the director general of RÚV and the news director of RÚV in May of 2012. Two of the interviewees were also part- owners of the media companies. The results indicated that it is, indeed, possible to analyze management practices of media organizations from the perspective of agency theory. However, it varies how much the companies are driven by profit maximization, for instance – on which agency theory places an optimum emphasis. The media house 365 miðlar ehf. turned out to be the best example of how the underlying constructs of agency theory are incorporated into the management practices of a media organization.

Normative Power Europe? The European Union in the Negotiations on a Free Trade Agreement with India

This article examines the European Union (EU) as an actor in international trade negotiations and calls into question constructivist notions of the European Union as a 'Normative Power'. The article argues out of an institutionalist perspective that the distribution of competences between Commission, Council and European Parliament (EP) in EU trade policy systematically privileges strategic and economic interests over normative objectives. Drawing on a principal-agent approach, it analyses the case of the EU-India negotiations on a free trade agreement. Results suggest that the close cooperation between Council and Commission before and during the negotiations prevent EU trade policy to be more guided by normative objectives. The European Parliament, as the voice of normative concerns, could influence negotiations, due to the EP's new powers in the ratification process. However, since the EP is institutionally excluded from the agenda-setting-process and can hardly control the Commission during the bargaining process, it capacities to set the negotiation goals ex ante are very constrained. Only when negotiations are in full play can the EP try to kick questionable demands off the EU's trade agenda and strive for normative aims. Therefore, issues like the inclusion of human rights and labour and environmental clauses seemed to have gained some importance, while economic development concerns hardly seem to influence the EU's trade negotiations.

Conceptualizing and theorizing EU regulatory networks

AbstractEuropean regulatory networks (ERNs) play a central role in the formulation, deliberation, and implementation of EU policies and have, thus, become objects of investigation in a fast‐growing scholarly literature. We identify two shortcomings – one conceptual, one theoretical – in the literature on ERNs: First, we argue that the principal–agent approach, which is conventionally used to conceptualize ERNs, overlooks and even misrepresents central features of ERNs. By introducing and applying the “orchestration” framework to ERNs we demonstrate that it better captures the specific characteristics of ERNs. Secondly, explanations for the choice and design of ERNs have treated functional and power‐based accounts as mutually exclusive. We argue instead that explanatory leverage can be gained by combining these two accounts by specifying their respective domains of application. While functional accounts enable us to illuminate why and under what circumstances ERNs are created in the first place (rather than EU agencies or delegation to the Commission), political accounts help us to shed light on variation in the design of ERNs (i.e. why actors opt for rather close or loose network structures). We illustrate the explanatory value‐added of such an approach through two brief case studies on EU telecommunications and competition policies.

The European Commission's Ability to Act Under European Competition Law. The Example of Telecommunications and Electricity Policy

European competition law allocates far-reaching competences to the European Commission. The paper asks for the conditions under which the Commission may use these rights against the member states, focusing on the most powerful provision - the right of the Commission under Article 90 to issue directives by itself in those cases where member-state governments have allocated specific rights to undertakings that conflict with the Treaty's rules. In addition the Commission may pursue Treaty violations on a case-by-case basis. In European telecommunications policy the Commission has used its powers rather successfully, with all liberalization decisions being based on Article 90. But for European electricity policy the Commission has shrunk away from using these powers in favor of initiating council legislation. The paper analyzes the conditions of the Commission's ability to act under European competition law in a multi-level framework, drawing among others on a principal-agent approach.

The impact of taxation on international assignment decisions: a principal–agent approach

In many industries like consulting or construction, highly qualified employees, i.e., experts or executive managers, have to be assigned to temporary projects. Obviously, the employees’ productivities in the respective projects are crucial for the employer’s optimal assignment decision, but assignment can also be affected by risk-incentive trade-offs. Moreover, taxation can alter the assignment decision, especially if employees are sent abroad as expatriates so that international tax law has to be taken into account. To address these issues simultaneously, we combine a human resource assignment problem with a principal–agent problem of the LEN type. Both wage taxation at the agents’ level and corporate taxation at the principal’s level are integrated. We show that national tax rules, the methods for avoiding double taxation, and the agents’ tax characteristics are important determinants of international assignment decisions. The effects of tax rate variations can be ambiguous and depend on whether the exemption method or the credit method are applied, in particular if agents make differing choices of residence. From a tax policy perspective, the exemption method should be preferred as the tax effects are more transparent and intuitive than under the credit method.

Comparing the Determinants of US-Funded NGO Aid Versus US Official Development Aid

Using a principal–agent approach, I seek to determine if differences exist between official US development aid (ODA) and US-funded non-governmental organizations (NGOs) development aid allocation. NGO scholars have expressed concern regarding NGOs' relationships with their government funders (Hulme and Edwards, NGOs, States, and Donors, St. Martin’s Press, New York, 1997); (Smillie, Stakeholders, Earthscan, London, 2000). Studies of European state-funded NGOs have found that need rather than political or economic interests determines state-funded NGO aid (Nancy and Yontcheva, Does NGO Aid Go to the Poor? Empirical Evidence from Europe. International Monetary Fund Working Paper 06/39, 2006; Dreher et al. 2009; World Economy 33:147–176, Kiel Working Paper No. 1486. Kiel, Germany: Kiel Institute for the World Economy, 2010) however; no study has examined US-funded NGO aid allocations. Results indicate that US-funded NGO aid mirrors US ODA allocations.

A Friend in Need: The Impact of the Syrian Civil War on Syria's Clients (A Principal-Agent Approach)

When a regional sponsor of militant movements experiences profound domestic instability, what happens to its clients? This paper explores this question by examining the case of Syria and its clients using a principal–agent approach. It examines three types of principal—single, collective, and multiple—focusing on the varying effects that these relationships have on the agents involved and arguing that each type of principal presents prospective agents with a trade-off between a loss of autonomy and a loss of internal cohesion. By comparing the effects of Syrian sponsorship on nonstate actors who have served as Syrian agents at various points in the evolution of the regime, I demonstrate that each type of principal has distinct advantages and risks for its agents. The paper concludes by outlining five possible outcomes of the current uprising in Syria for the Asad regime's clients, based on the uprising's impact on the regime as a principal.