Principal-agent Relationship Research Articles

Principal-agent Relationship and Agency Problem

Progressively stricter requirements of labor division have led to the blossom of the principal-agent model, where differences in objective functions between the principal and the agent, as well as information asymmetry, often hinder the principal from maximizing their utility and can result in potential harm to both parties and social welfare. This paper aims to analyze the endogenous causes and issues resulting from the principal-agent model and proposes solutions. Additionally, the shareholder-CEO relationship in finance is applied as a specific case of the principal-agent model for further analysis. Through the construct of a simple model and a signaling mechanism pondering more realistic elements, the negative effect of information asymmetry can be weakened. Lastly, based on the findings of this paper and existing empirical research, the article proposes specific schemes for the above-mentioned mechanism and discusses their implementation and implications. The investigation of principal-agent issues and the proposal of appropriate countermeasures are of great significance and are always frontier concerns for both academia and society.

Behind gold for pepper: The players and the game of Indo-Mediterranean trade

AbstractThis article offers a fresh approach to the study of ‘Indo-Roman’ trade by defining the ‘players’ of the ‘game’ of Indian Ocean commerce in the early centuries of the Common Era. Numerous specialized personnel hailing from the Mediterranean, Near East, and Indian subcontinent were involved in the movement, processing, and sale of Indian Ocean commodities. Players throughout the ancient world formed principal-agent relationships, corporate structures, and diaspora communities based on shared heritage and profession to facilitate their efforts. These tactics lowered the transaction costs of commerce arising from a combination of factors: the seasonal monsoon winds restricting wind-powered travel; the asymmetry of information for traders operating abroad without a strong support network; and state interventions (e.g. targeted infrastructure projects and tariffs). Certain individuals attained competitive advantages by cooperating with states to regulate the very commerce in which they engaged (e.g. tax-farmers).

Superior administration’s environmental inspections and local polluters’ rent seeking: A perspective of multilevel principal–agent relationships

The multilevel agency problems facilitate rent-seeking in local environmental affairs. However, research related to multilevel environmental governance in developing countries is still limited. This paper uses the excess management expenses as the proxy variable for rent-seeking to investigate the correlation between the superior administration’s environmental inspections and the local polluters’ rent-seeking, based on a quasi-natural experiment during 2011–2019 involving environmental inspections conducted by China’s central government. The main results show that superior inspections significantly reduce the excess management expenses of polluting companies. The mechanism analysis indicates that public concerns and corporate bargaining power have positive moderating effects on the implementation of superior inspections. Further results demonstrate that superior inspections are more significant in private enterprises and have improved corporate environmental performance. These findings provide empirical support and policy implications for improving multilevel governance in local environmental issues.

Europeanised Attitudes, Nationalised Communication? Evidence on the Patterns behind Political Communication Output in Brussels

Studies of a communication deficit in the European Union (EU) have hardly taken a systematic look at the site where most of the political communication output is being created: within the elite bubble of EU politicians and correspondents in Brussels. This study builds on the communication culture approach to describe and explain the basic attitudinal patterns of EU politicians and journalists who critically shape the political communication output coming out of Brussels that is being consumed by European citizens. Based on a survey with more than 300 participating politicians and journalists, this study demonstrates that the internationalised communication context in Brussels reduces differences between the attitudes of actors from professional and national groups. We demonstrate that there is a tendency toward common elitist attitudes, complemented by a highly negative view of the public and a cynical mode of political communication. However, we observe predominantly national contact networks in Brussels and partly differing attitudes among some sub-groups of politicians and journalists, reflecting the partly conflicting national configurations of the European political and media system and the principal-agent relationships of EU politicians and journalists with their constituencies and media outlets.

Responding to needs: military aid to Ukraine during the first year after the 2022 invasion

ABSTRACT The article analyses the provision of military aid to Ukraine during the first year after the 2022 Russian invasion and explains why it was more effective compared to other examples. It discusses the impact of material and intangible military assistance. The article examines tensions arising from principal-agent relationships between Ukraine and the states that provided support that may have affected what was provided and when it was delivered. It is notable that providers of assistance emphasised equipment rather than training, a choice that could be made because Ukraine had already built up a high level of combat skills and military organisation. The article argues that the distinctive aspects of military assistance to Ukraine that led to its impact were the quality and quantity of equipment provided, good communication and co-ordination between Ukraine and those states providing assistance, and that Ukrainian defence and government institutions could manage the aid provided.

A biological employment model of reproductive inequality.

Continuing the centuries-long exchange between economics and biology, our model of reproductive skew is an adaptation of the principal-agent relationship between an employer and an employee. Inspired by the case of purple martins (Progne subis) and lazuli buntings (Passerina amoena), we model a dominant male whose fitness can be advanced not only by coercing a subordinate male but, where coercion is impossible or not cost-effective, also by providing positive fitness incentives for the subordinate that induce him to behave in ways that contribute to the dominant's fitness. We model a situation in which a dominant and subordinate contest over a variable amount of joint total fitness, both the level and division of which result from the strategies adopted by both. Thus there is not some given amount of potential fitness (or 'pie') that is to be divided between the two (or wasted in costly contests). The fitness incentives that in evolutionary equilibrium are conceded to the subordinate by the dominant maximize the dominant's own fitness. The reason is that the larger pie resulting from the subordinate's increased helping more than compensates for the dominant's reduced fitness share. But the conflict over fitness shares nonetheless limits the size of the pie. This article is part of the theme issue 'Evolutionary ecology of inequality'.

Incentives for Promoting Safety in the Chinese Construction Industry

Construction accidents occur frequently in China because the supervision of safety standards mandated by the government has not had its intended effect. In this paper, the authors propose a model to incentivize the management of safety during construction that involves the government as well as the owners and contractors in the industry. This study analyzes the principal–agent relationship involving each participant to determine their utility function and the minimum constraints on their participation, and uses this to obtain the optimal parameters to incentivize the management of safety during construction by solving for the ones related to the contractor’s effort and reward for their performance in the proposed model of incentives. Through the design of contractor incentive parameters and owner incentive parameters to further influence the government contractor and owner tripartite safety incentive model to make the model more perfect and in line with the development status of China. This study tested the proposed model using simulations. The results indicated that increasing the cost coefficient and level of the contractor’s effort increases their expected safety-related benefits, and increasing the coefficients of reward and punishment by the government reduces the contractor’s expected safety-related benefits. Moreover, the government can motivate the management of safety during construction by offering appropriate rewards and punishments. In particular, if the government increases incentives for safety, the safety-related benefits for owners and contractors decrease in the short term but increase significantly in the long term.

On-chain global maintenance services: technical, legal and managerial implications

Facility management deals with all activities that are not core business for a company and are consequently outsourced to specialized companies. Maintenance is a fundamental activity in facility management and it is often handled by Global Maintenance Services (GMS) where some maintenance activities are delegated by the company to service providers and are remunerated according to measurable results expressed as Key Performance Indicators. In this context, it would be desirable to have information systems trustable by all involved actors. In this paper, we discuss the design of a blockchain solution capable to support a GMS on-chain. We first introduce the GMS concept and how it is related to the Principal-Agent relationship, and then we show a reference architecture to implement GMS on-chain. We discuss a use case and a proof-of-concept of on-chain GMS in a hospital showing how smart contracts and oracles can be used in this context. We finally discuss the main legal and managerial implications of the proposed approach.

(Non) rationality and choice architecture: a behavioural approach to public administrative discretion in New Zealand

PurposeA central question of public administration is how political principals secure the cooperation of administrators within organisational frames and contexts; increasingly, rational influences are being considered alongside bounded rationality and non-rational influences. This paper aims to explore the intent of New Zealand’s Public Service Act 2020 in managing administrative behaviour.Design/methodology/approachThe methodology is primarily ethnographic, combining emic and etic perspectives. A mixed-methods approach comprises participant observer field notes and meeting documentation, substantiated by official documents; documents were analysed thematically and triangulated with other data sources.FindingsThe Public Service Act introduces new bounds on administrative behaviour. The stated rationale for these changes reveals an attempt to set limits on the principal–agent relationship between politicians and administrators and causes predictable deviations from rational behaviour by cultivating public service motivation and a unified public service identity.Research limitations/implicationsAs the legislation in question was only passed in 2020, it is too early to definitively assess the ultimate impact of legislation on administrative behaviour. This case study demonstrates that behavioural approaches to public administration are being applied intentionally by governments. The choice architecture created in the case study blends rational, bounded, and non-rational influences. Together, this produces a bricolage of semi-relevant theories from other disciplines, especially psychology, to explain administrative behaviour. Further refinement is needed to develop a cohesive and comprehensive theory of administrative behaviour that can account for contemporary practice.Practical implicationsAdministrators act as agents of political principals, within ethical and rules-based limitations and influenced by public service motivation and social identity. Shifting from implicit to explicit choice architecture does not negate possible tensions between bounds and can signal them more explicitly. Shared symbols are sometimes intended to influence identity and therefore adherence to behavioural norms.Originality/valueThis paper explores the manipulation of choice architecture as a viable strategy for altering behaviour for the better and, to the best of the authors’ knowledge, is the first known instance of choice architecture being “legislated in” rather than merely “showing through”. This study illustrates the blending of rational, boundedly rational and non-rational factors into a choice architecture for public administrators that help mediate the biases and challenges of principal–agent relationships (which form a cascade in New Zealand’s public administration system).

Tension between the safe flow of government data across organizational boundaries and fragmentations in secure collaboration: the Chinese e-government

PurposeThe study focuses on influential factors of collaboration on government data security by the Chinese government.Design/methodology/approachThe article explores the case of e-government in the Chinese centralized unitary state system context, using a structured–pragmatic–situational (SPS) approach and the boundary theory as an analytical lens.FindingsThe findings indicate that e-government operates in highly interconnected environments where the safe flow of government data requires collaborative and cross-boundary strategies. Any organization is a potential “weakest link”. In addition, collaboration is fragmented by ambiguous accountability and organizational inertia across government departments, resources differences and limited visibility and measurability of security efforts across government levels and conflicts and uncertainties in principal–agent relationships. The solutions for those obstacles are also discussed from the multi-function, multi-level and multi-actor dimensions, respectively. A multi-dimensional overarching security model for the flow of government data is proposed.Originality/valueThe study advances the technology-oriented micro-analysis of previous studies on government data security to cross-organizational revealing at the macrolevel by connecting streams of research in information systems and public administration. These findings will contribute to making the safe flow of government data more resilient in the transformation of e-government.

Variation of principal-agent relations in Russian federal autocracy

ABSTRACT After twenty years of Putin’s rule, Russia has become a full-fledged autocracy, with regional governors subordinate to the federal center, serving as agents of the president-principal. The country thus provides vivid empirical evidence for agency relations between the national leader and regional elites in a multi-level autocracy. This study focuses on the relationship between the federal center and regions after the 2012 revival of the direct gubernatorial election in Russia. It argues that within the general political contract, different principal-agent relationships coexist between the Kremlin and regional governors. Combining the problems of information asymmetry and goal conflict, discussed in the principal-agent theory, this article formulates theoretical expectations for four agency relations, with three of them having empirical evidence in Russia. It also shows that for each type of agency relations the president-principal develops a toolkit to handle the agents, which is based on repression, co-optation, and legitimation.

Moral Hazard Problem in Public Policymakers

The moral hazard problem in government organizations is very recurrent due to weak compensation system (i.e., take-home salary) and non-existence of any additional premium (e.g., ownership of stocks) for public policy makers compared to their counterparts in private firms, which weakens the proprietorship of their organization. Since there is a principal-agent relationship between citizens and public policymakers, a loss in public goods and services to citizens signals a meaningful level of moral hazard problem in public policymakers as agents. The menace of moral hazard problem can be lessened through a proper Reward Punishment Approach (RPA). Under existing setup, a weak compensation system with severe punishment mechanics indicates flaws in PRA which needs improvement through reforms in its existing structure. This paper focuses on bringing the compensation system (i.e., take-home salary in terms of cash and a provision of additional premium) at par with market-based package along with various perquisites. The study expects a bare minimum financial implication which may be affordable for the government and decrease moral hazard problem, at least to some extent, leading to a better delivery of public goods and services for the citizens of the country.

Blockchain agency theory

Longstanding assumptions underlying strategic alliances, such as agency theory, are actively being revoked by dynamics in the new economy. The mechanism of inter-firm cooperation is increasingly being altered by radical developments in blockchains and artificial intelligence among other technologies. To capture and address this shift, this review takes a problematisation approach and focuses wholly on the pertinence of agency theory. First, it begins by acknowledging the established corpus in the area before, second, appraising the seven long-held assumptions in the principal-agent relationship encompassing (1) self-interest, (2) conflicting goals, (3) bounded rationality, (4) information asymmetry, (5) pre-eminence of efficiency, (6) risk aversion and (7) information as a commodity. Third, to add a fresh perspective, the review proceeds to proffer seven assumptions to advance a novel ‘Blockchain Agency Theory’ that would better describe new attributes and relaxed agency behaviour in blockchain alliances. These counter assumptions are (1) common interests, (2) congruent goals, (3) unbounded rationality, (4) information symmetry, (5) smart contracts, (6) mean risk and (7) information availability. In the fourth part, the prior audience of principals and agents is appraised and this culminates into, fifth, a consideration of a new audience of blockchain agency in algocratic environments. Altogether, the seven new assumptions extend and provoke new agency thinking among scholars and blockchain practitioners alike.

Counter-contestation in global health governance: The WHO and its member states in emergency settings

Is the contestation of international institutions always a one-sided process that originates from nation-states? In research to date, there has been little discussion of the extent to which international institutions endure, or even form counter-reactions to national contestation strategies. This study examines the reasons for which WHO engages in counter-contestation vis-à-vis its member states.The paper analyzes the evolution of global health governance by relating a principal-agent approach and contestation considerations. The WHO (agent) wants to reshape the principal-agent relationship with the member states (principals) in order to maximize its autonomy and eventually ensure stronger independence. The WHO pursues its efforts to become more independent on the basis of its own logic of action: To achieve this autonomy from member states, WHO on the one hand uses a strategy we call counter-contestation. On the other hand the member states want their interests to be represented by the WHO and ensure this goal through the logic of action known as contestation. Four international health crises are used to show how different the logics of action are and what effects they have. This study explores how and to what extent WHO actively engages in the political exchange of diplomatic moves and manoeuvres, creating contestation as a mutual game between states and International Organizations.

Incentive Mechanism Analysis of Environmental Governance Using Multitask Principal–Agent Model

In view of the principal–agent relationship between local government and pollution enterprise in environmental governance, this paper established a multitask principal–agent model, gave the optimal contract form of local government incentive to enterprises, examined the influencing factors of the optimal incentive contract, and focused on analyzing the influences of institutional factors, enterprise types and enterprise attributes on the optimal incentive contract. The results show that the optimal incentive contract is affected by the influence coefficient of enterprise economic benefits on local government revenue, the environmental index weight in government performance systems, the types of enterprise, the risk preference of enterprise, the variance in economic benefits, the variance in pollution emission reduction, the ability of economic benefits, the direct cost of emission reduction and the economic cost (income) of emission reduction. In order to realize the coordinated development of economy and environment, the establishment and adjustment of optimal incentive contract should be established or adjusted according to the institutional factors, different types of enterprise, and the enterprise characteristics. Local governments should divide enterprises into traditional enterprises and green innovative enterprises in the process of management. The policy formulation of the local government should be based on the characteristics of the system and cooperate with the national strategy. Local governments should actively collect and master the attribute information of the enterprises, including risk preference, profit model, pollution control technology and ability, management experience and level, production mode and green innovation ability. Local governments should combine the types of enterprises, the characteristics of institutions and the attributes of enterprises, and adjust various policies and measures more flexibly.

Lethal aid and human security: The effects of US security assistance on civilian harm in low- and middle-income countries

Since 2001, there has been a dramatic increase in the amount of US military aid flowing to foreign governments. What is the impact of this aid on human security? Drawing on recent research on the principal–agent relationship between state leaders and security sector actors, I develop a theory of the impact of security assistance on the use of deadly force against civilians. Using methods to account for the endogeneity of aid allocations, I find that the impact of security assistance on state violence varies based on the type of assistance provided and the institutional environment in the recipient state.

Principal-agent relations, politics of discretion, and the Africa-EU Partnership on Peace and Security

ABSTRACT Interregionalism constitutes a main feature of EU external policy and unfolds specifically in Africa-EU-relations. However, research has merely focused on the EU as a coherent actor, although many EU institutions implement cooperation with African partners. Likewise, principal-agent research, a prominent path to unpack the internals of EU policies, on the EU´s interregional relations is nascent. This paper seeks to fill these research gaps by applying a principal-agent framework to internal processes of the EU in its Africa relations. After analyzing acts of delegation, it analyzes the discretion of the agents. Pointing specifically to the EU-Africa Partnership on Peace and Security, the study investigates on principal-agent relations from a non-principal-related perspective that puts forward structure-induced and interest-induced factors for increased agent discretion. The results suggest that agents enjoy substantial discretion enabled by the specific environment and agent actions in a policy field of high importance to the principals.

Presenteeism as a moral hazard problem: Implications for the human resource management

Abstract Information asymmetry about the employee's state of health means that workers may decide to work (or not) when they are sick, which turns presenteeism into a principal-agent relationship. From this new perspective, presenteeism can be explained by some distinct and original factors such as implicit incentives related to motivation and a sense of autonomy (empowerment, job usefulness, and recognition) and explicit incentives given by wages and other non-economic benefits (training and career prospects). In a sample of European workers using multilevel (by country) Tobit models, we find that short-term incentives and workers' empowerment increase presenteeism, while long-term incentives reduce it. As expected, supervision is ineffective in controlling presenteeism, while relationships based on trust have a positive impact. Finally, we propose several practices related to incentives, training, monitoring, occupational health and safety and job design specifically intended to manage presenteeism and its consequences in six areas of the human resources function.

Management equity incentives and corporate tax avoidance: Moderating role of the internal control.

Under the modern enterprise system, the principal-agent relationship can cause a conflict of interest between the two power counterparts, thus affecting the degree of corporate tax avoidance. As a tool to align the interests of management and owners, management equity incentives can alleviate the conflict of interests brought about by the separation of powers and, therefore, may influence corporate tax avoidance. We examine the relationship between management equity incentives and corporate tax avoidance from both theoretical and empirical perspectives by using data from Chinese A-share listed companies from 2016 to 2020. Firstly, the effect of management equity incentives on tax avoidance is theoretically and normatively analyzed. Secondly, examine the effectiveness of moderating the effect of internal control and distinguishing the ownership of enterprises' nature through regression analysis. (1) There is a positive relationship between management equity incentives and corporate tax avoidance which means, more the stock incentive offered to executives, the more likely corporations are to pursue tax avoidance strategies aggressively. (2) Internal control deficiencies enhance the positive relationship between equity incentives and enterprise tax avoidance behavior. Therefore, in Chinese enterprises, the lack of an internal control system and the failure of internal control measures are prevalent, and such loopholes can intensify the tax avoidance behavior that arises when executives are subject to equity incentives. (3) The influence of management equity incentives on enterprise tax avoidance behavior is greater in state-owned (SOE) than private enterprises. State-owned enterprises are more likely to increase enterprise tax avoidance behavior when management is subject to equity incentives for reasons such as strict performance requirements, lower regulatory oversight, and less interference from negative information. Finally, our findings have significant implications for policymakers/regulators, public companies, investors, standard setters, managerial labor markets, and the welfare of the overall economy.

Detrimental Incentive Mechanisms in Dynamic Principal-Agent Relationships

Detrimental Incentive Mechanisms in Dynamic Principal-Agent Relationships