We thank Margit Osterloh and Reiner Eichenberger for extensive discussions on corporate governance issues and we are grateful to two anonymous referees, Christoph Engel, René L. Frey, Jesse Fried, Henry Hansmann, Bernd Helmig, Stephan Meier, Dennis Mueller, Daniel Rubinfeld, Alois Stutzer and conference participants in Zurich and Berkeley for helpful remarks. The second author thanks the Boalt School of Law, University of California at Berkeley, for its hospitality during the preparation of this article and acknowledges financial support by the Swiss National Science Foundation.
Can Private Learn from Public Governance?*
Article first published online: 21 NOV 2005
The Economic Journal
Volume 115, Issue 507, pages F377–F396, November 2005
How to Cite
Frey, B. S. and Benz, M. (2005), Can Private Learn from Public Governance?. The Economic Journal, 115: F377–F396. doi: 10.1111/j.1468-0297.2005.01041.x
- Issue published online: 21 NOV 2005
- Article first published online: 21 NOV 2005
Corporate governance is importantly based on agency theory and relies on extrinsic incentives to align the interests of managers, employees and shareholders. This article argues that in view of recent corporate scandals, private governance can learn from public governance: (1) Goal-oriented intrinsic motivation of agents should be supported by fixed incomes and an extensive selection process of employees; (2) Extrinsic, but non-monetary incentives (e.g. conferring orders and titles) can be used; (3) The power of actors should be restricted by a clear division of power, appropriate rules of succession and institutionalised competition for positions in firms.