I have benefited from fruitful conversations with Marshall Boswell and Susan Kent. Comments from an anonymous referee and the editor are also gratefully acknowledged.
IS AGENCY THEORY SELF-ACTIVATING?
Version of Record online: 26 FEB 2007
Volume 45, Issue 4, pages 708–720, October 2007
How to Cite
ARCE, D. G. (2007), IS AGENCY THEORY SELF-ACTIVATING?. Economic Inquiry, 45: 708–720. doi: 10.1111/j.1465-7295.2007.00047.x
- Issue online: 17 OCT 2007
- Version of Record online: 26 FEB 2007
- Online Early publication February 26, 2007
This article examines the conditions under which the principal-agent model is self-activating/socially causal. We do so by exploring a principal-agent framework that allows for the possibility that rational agents may hold intrinsic preferences for autonomy in decision making and experience disutility from being monitored. Using a dynamic model of preference formation, we identify conditions under which the principal-agent model is self-activating in that, over time, the introduction of the model in an otherwise efficient monitor-worker relationship leads to the inefficient adoption of the agency model. We also examine the extent to which the agency model is robust when autonomy-preferring agents are introduced into the population. (JEL G30, L20, C72)