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Book part
Publication date: 1 September 2008

William J. Phelan

Principal-agency theory was adapted from business and economics to explain the behavior of various government actors. Yet the idea of an agent and a principal is only…

Abstract

Principal-agency theory was adapted from business and economics to explain the behavior of various government actors. Yet the idea of an agent and a principal is only depicted in a limited fashion when discussed in light of the realm of business and economics. Legal studies has grappled with the idea of agency well before political science or economics. I lay out the basic principles of both agency law and Congressional principal-agent theory. I then establish the groundwork for drawing important connections between agency law and principal-agency theory. I also analyze and attempt to ameliorate differences between these two theoretical approaches.

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Studies in Law, Politics and Society
Type: Book
ISBN: 978-1-84855-090-2

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Article
Publication date: 1 March 1996

Robert W. Smith and Mark Bertozzi

Principal agent theory has its roots in the economic theory of the firm, decision theory, sociology, organizational theory, and more recently political science. However…

Abstract

Principal agent theory has its roots in the economic theory of the firm, decision theory, sociology, organizational theory, and more recently political science. However, there are only limited applications of the theory in the arena of public budgeting. This paper considers principal agent theory as an alternative method for explaining budgetary outcomes through an examination of interactive relationships not adequately captured by traditional hierarchical-based models of public budgeting. Because implicit and explicit contractual relationships pervade the entire budget making process, principal agent theory can make a major contribution toward developing more inclusive and accurate models of most stages of public budgeting.

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Journal of Public Budgeting, Accounting & Financial Management, vol. 10 no. 3
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 12 February 2018

David W. Parker, Uwe Dressel, Delroy Chevers and Luca Zeppetella

Agency theory suggests that divergences will occur when a principal, e.g. client, and agent e.g. a project manager, interests are different in the execution of a project…

Abstract

Purpose

Agency theory suggests that divergences will occur when a principal, e.g. client, and agent e.g. a project manager, interests are different in the execution of a project. The purpose of this paper is to explore if the agency theory can explain the subtleties integral to the behaviours and relationships between players delivering a public-private-partnership (PPP) in the context of an international development (ID) project. The intra-/interpersonal dynamics include governments, non-governmental organisations (NGOs) and private commercial service providers. The authors develop a conceptual framework and provide evidence from a case study of the testing of a Road Safety Toolkit in Kenya to explore several propositions.

Design/methodology/approach

Extant literature identified application of the agency theory, and the development of a conceptual framework. A case study describing an ID project was used to validate the propositions prior to the expansion of a research instrument for data collection in the field.

Findings

Through the lens of the agency theory and the limitations imposed by exploring a series of propositions, several insightful conclusions have been derived from the case. ID projects have particular nuisances that make them unique when compared to the majority of commercial applications. An added dimension and level of complexity is a consequence of the PPP incorporating government, NGOs and private corporations. The case exemplified the need for PPP ID projects to build on partner networks to influence and disseminate outcomes. Some agency problems were far less prominent than would normally be seen in a commercial project.

Research limitations/implications

The methodologies presented in this paper need to be adapted and practiced in different kinds of ID projects in order to get confirmatory analytical results. The limitations imposed by the use of the single case, whilst drawing insightful conclusions, would necessitate greater testing in the field.

Practical implications

Although the problems of the agency theory are well researched in the operations management literature, there is limited application to ID projects and no previous research within the context of a PPP. Therefore, this work is important for greater understanding of the specific issues associated with project delivery of an ID.

Social implications

Conflicting goals between principals and agents are common for organisations, which in turn affect inter-relationships on an international footing. The agency theory has had little attention in the project management field, yet is fundamental to relationships and communication.

Originality/value

There has been little research that explores the agency theory in the context of a PPP involving governments, NGOs and private commercial service providers, executed as an ID project. This work, therefore, exhibits new and novel findings.

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International Journal of Productivity and Performance Management, vol. 67 no. 2
Type: Research Article
ISSN: 1741-0401

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Article
Publication date: 3 August 2012

Sajad Fayezi, Andrew O'Loughlin and Ambika Zutshi

The paper aims to explain how agency theory can be used to inform our understanding of the dynamics surrounding supply chain behaviours and relationships.

Abstract

Purpose

The paper aims to explain how agency theory can be used to inform our understanding of the dynamics surrounding supply chain behaviours and relationships.

Design/methodology/approach

A structured review of the literature using a three‐stage refinement process is used. The articles were sourced through online databases and keyword classifications, such as “agency theory”, “principalagent relationships” and “supply chain management”. The search initially identified over 86 articles. After further screening these were reduced to 19 for final assessment and comparison.

Findings

Despite agency theory's prevailing descriptive and predictive qualities there is scarcity in its application to the SCM discipline. The authors posit that agency theory provides valuable insights for relationship engineering within supply chains where social, political, legal and behavioural dynamics dominate.

Practical implications

It is a critical task for managers to understand and mitigate abnormal behaviours across the supply chain. Agency theory serves this need by providing them with a useful tool to respond to transaction cost dilemmas through contractual and non‐contractual remedies.

Originality/value

This is one of the first studies that examines the current state of agency theory application in the SCM literature and suggests potential avenues for future research.

Details

Supply Chain Management: An International Journal, vol. 17 no. 5
Type: Research Article
ISSN: 1359-8546

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Article
Publication date: 1 September 1996

Kjell Hausken

Lays out a framework for analysing ethics in organizations. Relying on methodological individualism, introduces five building blocks for the framework: self‐interest…

Abstract

Lays out a framework for analysing ethics in organizations. Relying on methodological individualism, introduces five building blocks for the framework: self‐interest, individual rationality, sequential rationality, incentive compatibility, and reputation. Uncritical use of the self‐interest model may induce framing effects, blinding less cautious users to important ethical dimensions. Illustrates the richness and “ethical flavour” of an appropriately considered self‐interest model through focusing one of the individual agent’s real interests in a broad sense, through the use of the time factor in the building blocks, and through suggesting how the individual agent can interpret the value systems in her surroundings.

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International Journal of Social Economics, vol. 23 no. 9
Type: Research Article
ISSN: 0306-8293

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Book part
Publication date: 10 August 2015

Matthew Norton

Several explanations for the Royal African Company’s failure around the turn of the eighteenth century have been suggested. The paper argues that these reasons can be…

Abstract

Several explanations for the Royal African Company’s failure around the turn of the eighteenth century have been suggested. The paper argues that these reasons can be integrated into a more comprehensive account of the company’s failure through the introduction of a modified version of principal-agent theory. Instead of focusing on abstract, dyadic relationships, the paper proposes a model that accounts for the meaningful character of principal agent interactions and for the complex networks and multiple role identities of actors within those networks that comprised principal-agent relations within the company. On the basis of this model the failure of the company can be seen as a result of contradictions between its dual role as both agent and principal. The symbolic importance of inefficient trading practices helps to explain why the company was unable to pursue alternative strategies or otherwise benefit from its monopoly.

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Chartering Capitalism: Organizing Markets, States, and Publics
Type: Book
ISBN: 978-1-78560-093-7

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Article
Publication date: 24 October 2008

Bjørn Andersen, Bjørnar Henriksen and Ingrid Spjelkavik

The purpose of this paper is to explore the range of benchmarking applications that can be used in a principalagent relationship setting often found in the public sector.

Abstract

Purpose

The purpose of this paper is to explore the range of benchmarking applications that can be used in a principalagent relationship setting often found in the public sector.

Design/methodology/approach

Collection and critical analysis of secondary data from relevant publications addressing applications of benchmarking in the public sector. Extraction of knowledge from several research projects where the authors have been involved in studying and developing benchmarking approaches for different public sector organizations. Induction of new theory about the use of benchmarking in principalagent relationships in the public sector, grounded through empirical evidence from case studies.

Findings

A number of new approaches to benchmarking in the public sector have been identified and described, some of which are already used in real life cases, others which need further development before being implemented. All of these can introduce benefits to both principals and agents involved in such benchmarking efforts.

Research limitations/implications

The paper explores benchmarking applications that are almost exclusively relevant in a public sector setting, although some of them might be adapted to certain private sector conditions.

Originality/value

Whereas most work on benchmarking in the public sector tend to view only improvement‐oriented, voluntary benchmarking as relevant and useful, this paper demonstrates how many different imposed benchmarking schemes with other purposes can be useful.

Details

Benchmarking: An International Journal, vol. 15 no. 6
Type: Research Article
ISSN: 1463-5771

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Article
Publication date: 1 March 2008

Cliff McCue and Eric Prier

Cooperative purchasing is beginning to receive renewed attention by scholars and practitioners alike in both the private and public sectors. Generally, cooperative…

Abstract

Cooperative purchasing is beginning to receive renewed attention by scholars and practitioners alike in both the private and public sectors. Generally, cooperative purchasing arrangements have been reported to reduce costs, expedite transactions, and increase product knowledge. In the public sector, cooperative purchasing has been reported to reduce political risk, minimize “red-tape,” and, in some cases, avoid all reported social equity goals that are reported to increase costs. In this article, we contend that the lack of conceptual clarity has marred the literature on cooperative public sector purchasing, and as a result public sector purchasers have no theoretical guidelines to help them decide upon this purchasing mechanism. Therefore, the purpose of this article is to use agency theory to analyze, define, and establish a conceptual framework of cooperative public purchasing to help guide academics and practicing public sector purchasing professionals.

Details

Journal of Public Procurement, vol. 8 no. 1
Type: Research Article
ISSN: 1535-0118

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Article
Publication date: 23 May 2008

Kate Baxter, Marjorie Weiss and Julian Le Grand

The purpose of the paper is to investigate the inter‐ and intra‐organisational relationships in the commissioning of secondary care by primary care trusts in England…

Abstract

Purpose

The purpose of the paper is to investigate the inter‐ and intra‐organisational relationships in the commissioning of secondary care by primary care trusts in England, using a principalagent framework.

Design/methodology/approach

The methodology is a qualitative study of three case studies. A total of 13 commissioning‐related meetings were observed. In total, 21 managers and six consultant surgeons were interviewed.

Findings

There are a number of different levels at which contractual and managerial control take place. Different strengths of control at one level can affect willingness to comply with agreements at other levels. Agreements at one level do not necessarily result in appropriate or expected action at another.

Research limitations/implications

The system for commissioning in the National Health Service (NHS) has changed with the introduction of payment by results and practice‐based commissioning. However, the dynamics of the inter‐ and intra‐organisational relationships studied remain.

Practical implications

Incentives within organisations are as important as those between organisations. Within a chain of principalagent relations, it is important that a strong link in the chain does not result in the exploitation of weaknesses in other links. If government targets and frameworks are to be met through commissioning, it may be advantageous to concentrate efforts on developing incentives that align clinician with NHS trust objectives as well as NHS trust with primary care trust (PCT) and government objectives.

Originality/value

This paper is based on original empirical work. It uses a principalagent framework to understand the relationships between PCTs and NHS trusts and highlights the importance of internal NHS trust governance systems in the fulfilment of commissioning agreements.

Details

Journal of Health Organization and Management, vol. 22 no. 2
Type: Research Article
ISSN: 1477-7266

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Article
Publication date: 1 July 2005

Caroline Nyman, Fredrik Nilsson and Birger Rapp

In Sweden there is an ongoing debate on ways to enhance accountability and transparency in order to avoid future scandals both in private companies and local government…

Abstract

Purpose

In Sweden there is an ongoing debate on ways to enhance accountability and transparency in order to avoid future scandals both in private companies and local government. Until now the debate has had clear political overtones, and there are no generally accepted methods for analysis of this issue. The purpose of the article is to survey and analyze the chain of accountability to be reviewed by the auditors and through the use of principalagent (PA) theory to identify the problems that may arise in holding persons accountable.

Design/methodology/approach

The paper shows how PA theory can be used to structure and analyse the intricate situation in Swedish local government. The model is particularly suitable in complex systems of accountability. Therefore, the paper explores two cases where the outcomes were discharge from liability. Based on the two case studies, the paper extends the empirical investigation to a list of 63 qualified audit reports in local government for 2002 and 2003.

Findings

PA theory facilitated the understanding and structuring of the complex accountability situation and helped to identify important weaknesses in the system. The analysis underscored that neither better accounting nor better auditing systems alone will resolve the dilemma in improving accountability. The link between auditors and elected officials and civil servants needs to be investigated and clarified. Among other things, this means that the focus of today's debate should shift toward the lack of clear responsibilities within local governments.

Research limitations/implications

This paper explores an area of research where few studies have previously been conducted – therefore, the paper is to some extent exploratory. In the future the number of empirical examples could be increased, and the different problems in the system of accountability in local government could be discussed in more detail.

Practical implications

This research paper is based on an empirical investigation – as far as we know no such study has previously been performed in Sweden The principle of public access to information in Sweden provides unique opportunities for openly studying the work of auditors in the system.

Originality/value

The research shows that PA theory may be used to structure complex issues of accountability. In addition, the study recommends a new focus for the debate on accountability.

Details

Journal of Human Resource Costing & Accounting, vol. 9 no. 2
Type: Research Article
ISSN: 1401-338X

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